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Laws of the Republic of Korea |
Amended by Act No. 10063, Mar. 12, 2010
PART I GENERAL PROVISIONS
Article 1 (Purposes)
The purpose of this Act is to contribute to the development of the national economy by facilitating financial innovation and fair competition in the capital market, protecting investors, fostering the development of the financial investment business, and heightening the fairness, reliability, and efficiency of the capital market. Article 2 (Applicability to Activities Conducted Abroad) Activities conducted in a foreign country shall be governed by this Act, if the effects of such activities extend to the territory of the Republic of Korea. Article 3 (Financial Investment Instruments)
(1) The term "financial investment instrument" in this Act shall mean a right acquired by an agreement to pay, at a specific time in the present or in the future, money or any other valuable thing (hereinafter referred to as "money, etc."), with an intention to earn a profit or avoid a loss, where there is a risk that the total amount of such money, etc., paid or payable, for the purpose of acquiring such right (excluding any sum specified by Presidential Decree, such as sales commissions) may exceed the total amount of money, etc., already recovered or recoverable from the right (hereinafter referred to as "investment risk"). Provided, that the following instruments shall be excluded here from:
1. Negotiable certificates of deposit in Korean won; and FINANCIAL INVESTMENT SERVICES
AND CAPITAL MARKETS ACT
500 Ministry of Government Legislation
2. Beneficial interest in a trust with no power granted to the trustee to dispose of the trust property (hereinafter referred to as "management trust"), excluding the power to dispose of the trust property under Articles 42 and 43 of the Trust Act. (2) The financial investment instruments under paragraph (1) shall be classified as follows:
1. Securities; and
2. Derivatives: (a) Exchange-traded derivatives; and
(b) Over-the-counter derivatives.
Article 4 (Securities)
(1) The term "securities" shall mean financial investment instruments issued by a citizen of Korea or a foreigner, for which investors do not owe any obligation to pay anything further on any ground, in addition to the money, etc., that the investors paid at the time of acquiring such instruments, excluding obligations to pay where an investor assumes such an obligation by exercising a right to effectuate the purchase and sale of an underlying asset.
(2) The securities under paragraph (1) shall be classified as follows:
1. Debt securities;
2. Equity securities;
3. Beneficiary certificates;
4. Investment contract securities;
5. Derivatives-combined securities; and
6. Securities depositary receipts. (3) The term "debt securities" shall mean state bonds, local government bonds, special bonds (referring to bonds issued by a corporation established by direct operation of an Act; hereinafter the same shall apply), corporate bonds, corporate commercial papers (referring to promissory notes issued by a company for raising the funds required for its business, which shall meet the requirements prescribed by Presidential Decree; hereinafter the same shall apply), and other similar instruments, which bear the indication of a right to claim payment.
(4) The term "equity securities" shall mean stock certificates, instruments representing a preemptive right, investment securities issued by a corporation established by direct operation of an Act, equity shares in contribution to a limited partnership company, Laws on Green Growth, and Economic Investment in Korea 501 05_LawsConcerningEconomicInvestment
limited liability company, or undisclosed association under the Commercial Act, equity shares in contribution to an association under the Civil Act, and other similar instruments, which bear the indication of equity shares in contribution. (5) The term "beneficiary certificates" shall mean the beneficiary certificates under Article 110, the beneficiary certificates under Article 189, and other similar instruments, which bear the indication of a beneficial interest in a trust. (6) The term "investment contract securities" shall mean instruments bearing the indication of a contractual right under which a specific investor is entitled to the profits earned, or liable for losses sustained, depending upon the results of a joint venture in which the investor makes an investment jointly with another person and which is to be operate mainly by the other person.
(7) The term "derivatives-combined securities" shall mean instruments bearing the indication of a right under which the amount payable or recoverable shall be determined according to a predetermined formula tied to fluctuations in the price of any underlying assets, an interest rate, an indicator, a unit, an index based upon any of the aforementioned, or any other similar factor.
(8) The term "securities depositary receipts" shall mean instruments issued by a person with whom any of the securities enumerated in paragraph (2) 1 to 5 are deposited in a country other than the country where such underlying securities were issued, which bear the indication of the relevant right on the deposited underlying securities. (9) The rights that may or must be indicated on any of the securities under subparagraphs of paragraph (2) shall be deemed as securities, even where any certificate representing such rights is not issued in a physical form.
(10) The term "underlying assets" shall mean:
1. Financial investment instruments;
2. Currency (including any foreign currency);
3. Ordinary commodities (referring to agricultural products, livestock products, fisheries products, forestry products, mining products, energies, the goods manufactured or processed with such products as raw materials, and other similar goods);
4. Credit risk (referring to a change in credit owing to a change in credit rating, bankruptcy, debt readjustment, etc. of a party or a third party); or
5. Other risk that is one of natural, environmental, or economic phenomena, which can be computed or assessed by price, interest, indicator, or unit in a reasonable and appropriate way.
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Article 5 (Derivatives)
(1) The term "derivatives" shall mean contractual right falling under any of the following subparagraphs:
1. A contract in which it is agreed to deliver money, etc., at a specific time in the future, which shall be computed on the basis of underlying assets, the price of the underlying assets, an interest rate, an indicator, a unit, or an index based on any of the aforesaid factors;
2. A contract in which the parties agree to grant, by either party's unilateral expression of willingness, a right to effectuate a transaction of delivering and accepting money, etc., which shall be computed on the basis of underlying assets, the price of the underlying assets, an interest rate, an indicator, a unit, or an index based on any of the aforesaid factors; and
3. A contract in which the parties agree to exchange money, etc., during a certain period of time in the future at a predetermined price, which shall be computed on the basis of underlying assets, the price of the underlying assets, an interest rate, an indicator, a unit, or an index based on any of the aforesaid factors. (2) The term "exchange-traded derivatives" shall mean the instruments traded in the domestic derivatives market or an overseas derivatives market (referring to a market in a foreign country, similar to the domestic derivatives market, or a market in which foreign derivatives are traded, as specified by Presidential Decree). (3) The term "over-the-counter derivatives" shall mean the derivatives that are not exchange-traded derivatives.
(4) The execution of a contract that falls within any of the subparagraphs of paragraph (1) which is not a sales contract, shall be deemed a sales contract for the purposes of this Act.
Article 6 (Financial Investment Business)
(1) The term "financial investment business" shall mean activities conducted continuously or repeatedly for the purpose of earning a profit, which shall fall under:
1. Investment trading business;
2. Investment brokerage business;
3. Collective investment business;
4. Investment advisory business;
5. Discretionary investment business; or Laws on Green Growth, and Economic Investment in Korea 503 05_LawsConcerningEconomicInvestment
6. Trust business. (2) The term "investment trading business" shall mean business making transactions in financial investment instruments, issuing and underwriting securities, inviting offers, offering, and accepting offers for securities on its own account regardless under whose name it is in.
(3) The term "investment brokerage business" means a business making transactions in financial investment instruments, inducing offers, offering, and accepting offers for such instruments, or inducing offers, offering, and accepting offers for the issuance and acceptance of securities on another person's account regardless under whose name it is in.
(4) The term "collective investment business" shall mean business engaged in making collective investments.
(5) The term "collective investments" in paragraph (4) shall mean activities of acquiring, disposing of, and managing in any way assets that are valuable for investment with money, etc., pooled by inviting two or more persons for such investment, or with a surplus fund under Article 81 of the National Finance Act, without being bound by management instructions given from time to time by investors or by any fund management entity, and distributing the yields therefrom to deliver to investors or to any fund management entity. Provided, that a case falling under any of the following subparagraphs shall be excluded:
1. Money, etc., is pooled through private placement for management and distribution in accordance with the Acts specified by Presidential Decree, and the total number of investors specified by Presidential Decree does not exceed the number prescribed by Presidential Decree;
2. Money, etc., is pooled for management and distribution in accordance with an asset-backed securitization plan under Article 3 of the Asset-backed Securitization Act Asset-backed Securitization Act; and
3. The case falls within any case prescribed by Presidential Decree, taking into consideration the nature of the activities, the need to protect investors, etc. (6) The term "investment advisory business" shall mean business providing advice on the value of financial investment instruments or related judgments (referring to judgments over class, item, acquisition, disposition, methods of acquisition or disposition, quantity, price, timing, etc.; hereinafter the same shall apply). (7) The term "discretionary investment business" shall mean business making acquisition, disposition, and management in any of financial investment instruments, earmarking 504 Ministry of Government Legislation
them for investors, with authorization from investors for discretionary judgment, entirely or partially, over financial investment instruments. (8) The term "trust business" shall mean business engaging in trusts. Article 7 (Exception of Financial Investment Business from Application) (1) A business shall not be deemed an investment trading business when it issues its own securities (excluding beneficiary certificates of an investment trust, derivatives-combined securities specified by Presidential Decree, and deposits and insurances in the nature of an investment).
(2) A business shall not be deemed an investment brokerage business when an investment solicitor under Article 51 (9) acts as an agent for recommending an investment. (3) A business shall not be deemed an investment advisory business when it provides advice through a periodical, a publication, a correspondence, a broadcast media or any other medium that is issued or transmitted to an unspecified number of people, and which is available to an unspecified number of people for purchase or receipt from time to time.
(4) A business shall not be deemed a discretionary investment business when it is necessary for an investment broker to have authority to make discretionary judgments, entirely or partially, over investments in financial investment instruments in the course of dealing with orders received from investors for trading, as prescribed by Presidential Decree.
(5) A business shall not be deemed a trust business, in cases where it is a trust business
for secured debentures under the Secured
Debentures Trust Act, or a copyright trust
management business under the Copyright Act.
(6) In addition to the businesses specified in paragraphs (1) to (5), a business shall not
be deemed a financial investment business
under each subparagraph in Article 6 (1)
when it falls under any of the following subparagraphs, as prescribed by Presidential
Decree:
1. When the Korea Exchange created pursuant to Article 373 (hereinafter referred
to as the "Korea Exchange") establishes and operates
the securities exchange and
derivatives market;
2. When the business sells or buys financial investment instruments directly to or
from an investment trader or through an investment
broker; and
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3. When it is necessary to exclude the business from treatment as a financial investment
business for any other reason, taking into
consideration the nature of its activities,
the need to protect investors, etc., as prescribed by Presidential Decree.
Article
8 (Financial Investment Business Entity)
(1) The term "financial investment business entity" shall mean an entity that operates
a financial investment business under subparagraphs
of Article 6 (1) with authorization
from, or a registration with, the Financial Services Commission.
(2) The term "investment trader" shall mean an entity that operates an investment trading
business.
(3) The term "investment broker" shall mean an entity that operates an investment
brokerage business.
(4) The term "collective investment business entity" shall mean a financial investment
business entity that operates a collective
investment business.
(5) The term "investment advisory business entity" shall mean a financial investment
business entity that
operates an investment advisory business.
(6) The term "discretionary investment business entity" shall mean a financial investment
business entity that operates a discretionary investment business.
(7) The term "trust business entity" shall mean a financial
investment business entity that
operates a trust business.
Article 9 (Other Definitions)
(1) The term "major shareholder" shall mean a shareholder who falls under any of the
following subparagraphs: 1. A principal who holds the greatest number of stocks (including securities depository
receipts that are related to the stocks)
out of the total number of outstanding voting
stocks when the number of stocks held by him/her and the number of stocks held
by
his/her specially related person, as defined by Presidential Decree (hereinafter
referred to as "specially related person"), no
matter whose name the principal's
account stand in (hereinafter referred to as the "largest shareholder"); and
2. A person who falls under any of the following items (hereinafter referred to as
"significant shareholder"):
(a) A person who holds 10/100 or more of the total number of outstanding voting
506 Ministry of Government Legislation
stocks (including securities depository receipts that are related to the stocks)
of a corporation, no matter whose name the account
stand in; and
(b) A shareholder who exercises de facto control over major matters to a corporation
through appointment and dismissal
of executives or in any other way, as
prescribed by Presidential Decree.
(2) The term "executives" shall mean directors and auditors.
(3) The term "outside director" shall mean director who is not engaged
in ordinary business
affairs of a company and appointed pursuant to Article 25.
(4) The term "investment recommendation" shall
mean the act of making a recommendation
to a specific investor to make a contract for trading financial investment instruments,
for investment advising, for discretionary investment, or for a trust (excluding a
management trust contract and a trust contract
with no investment risk).
(5) The term "professional investor" shall mean an investor who has an ability to take
risks accompanying
the investment in light of the expertise that it possesses in
connection with financial investment instruments, the scale of assets
owned by it, etc.,
and who falls under any of the following subparagraphs. Provided, that a financial
investment business entity
shall give consent to a professional investor prescribed by
Presidential Decree when the investor notifies the financial investment
business entity,
in writing, of its willingness to be treated as an ordinary investor, unless there is
a justifiable ground otherwise,
and such investor shall be treated as an ordinary investor
when the financial investment business entity gives such consent:
1. State;
2. The Bank of Korea;
3. Financial institutions specified by Presidential Decree;
4. Stock-listed corporations. Provided, that trading over-the-counter derivatives with
a financial investment business entity shall
be limited to cases where an investor
notifies the financial investment business entity in writing of its willingness to be
treated
as a professional investor; and
5. Other persons specified by Presidential Decree.
(6) The term "ordinary investor" shall mean any investor other than professional
investors.
(7) The term "public offering" shall mean the invitation of 50 or more investors, as
computed by a formula prescribed
by Presidential Decree, to make offers to acquire
securities newly issued.
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(8) The term "private placement" shall mean the invitation of people to acquire newly
issued securities without putting them on
public offering.
(9) The term "public sale" shall mean offering 50 or more investors, as computed by
a formula prescribed by Presidential
Decree, to make an offer to sell or invite offers
to purchase securities already issued.
(10) The term "issuer" shall mean an entity that has already issued or intends to issue
securities. Provided, that the term shall
also mean an entity that has issued or intends
to issue the securities that underlie securities depositary receipts in the context
of
issuing securities depositary receipts.
(11) The term "underwriting" shall mean any of the following acts conducted in public
offering, private placement, or public sale
of securities:
1. Acquiring all or part of such securities with an intent to have third parties acquire
such securities; and
2. Making a contract which provides that if there are no third parties who are willing
to acquire all or part of such securities,
the acquiring party under the contract shall
take over all remaining securities.
(12) The term "underwriter" shall mean an entity that conducts the acts set forth in any
the subparagraph in paragraph (11) in the
context of public offering, private placement,
or public sale of securities.
(13) The term "securities exchange" shall mean the markets established by the Korea
Exchange for trading securities, which shall
be divided into the following markets:
1. A market established for trading the securities defined under subparagraphs of
Article 4 (2) (hereinafter referred to as the "securities
market"); and
2. A market established for trading specific securities designated by Presidential
Decree among the securities defined under subparagraphs
of Article 4 (2) (hereinafter
referred to as "KOSDAQ market").
(14) The term "derivatives market" shall mean a market established by the Korea Exchange
for trading exchange-traded derivatives.
(15) The terms "listed corporation", "unlisted corporation", "stock-listed corporation", and
"stock-unlisted corporation" in this
Act shall refer to the following:
1. Listed corporation refers to a corporation that issues securities listed on the securities
exchange (hereinafter referred to as
"listed securities");
2. Unlisted Corporation refers to any corporation other than listed corporations;
508 Ministry of Government Legislation
3. Stock-listed Corporation refers to a corporation falling under any of the following
items:
(a) A corporation that has issued stock certificates listed on the securities market; or
(b) In cases where securities depository
receipts that are related to stock certificates
are listed on the securities market, a corporation that has issued the stock
certificates;
and
4. Stock-unlisted Corporation refers to any corporation other than stock-listed corporations.
(16) The term "foreign corporation
or similar" shall mean:
1. A foreign government;
2. A foreign local government;
3. A foreign public institution;
4. A foreign company established pursuant to acts and subordinate statutes of a foreign
country;
5. Any international organizations specified by Presidential Decree; or
6. Any other juridical person in a foreign country, as specified by Presidential Decree.
(17) The term "institutions related to financial
investment business" shall mean:
1. Korea Financial Investment Association established pursuant to Article 283
(hereinafter referred to as the "Association");
2. Korea Securities Depository established pursuant to Article 294 (hereinafter referred
to as the "Securities Depository");
3. A person with authorization under Article 324 (1) (hereinafter referred to as
"financial securities company");
4. A merchant bank under Article 336;
5. A person with authorization under Article 355 (1) (hereinafter referred to as
"financial brokerage company");
6. A person with authorization under Article 360 (1) (hereinafter referred to as
"short-term financial company");
7. A person with registration under Article 365 (1) (hereinafter referred to as "transfer
agency company"); and
8. An organization related to financial investment, established pursuant to Article 370.
(18) The term "collective investment scheme"
shall mean any of the following schemes
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established for making collective investment:
1. A collective investment scheme in the form of a trust, in which trustors, who are
collective investment business entities, require
a trust business entity to invest and
manage the property entrusted to the trust business entity in compliance with
instructions
provided by the collective investment business entities (hereinafter
referred to as "investment trust");
2. A collective investment scheme in the form of a stock company under the Commercial
Act (hereinafter referred to as "investment
company");
3. A collective investment scheme in the form of a limited liability company under
the Commercial Act (hereinafter referred to as
"investment limited liability company");
4. A collective investment scheme in the form of a limited partnership company under
the Commercial Act (hereinafter referred to
as "investment limited partnership company");
5. A collective investment scheme in the form of an association under the Civil Act
(hereinafter referred to as "investment association");
6. A collective investment scheme in the form of an undisclosed association under
the Commercial Act (hereinafter referred to as
"undisclosed investment association");
and
7. A collective investment scheme in the form of a limited partnership company that
invests and manages its fund in equity securities,
etc. for participation in management,
improvement of business structure, corporate governance, etc. by issuing equity
securities
only through private placement (hereinafter referred to as "private equity
fund").
(19) The term "privately placed fund" shall mean a collective investment scheme that
issues collective investment securities only
through private placement, in which the
total number of the investors specified by Presidential Decree shall not exceed the
number
prescribed by Presidential Decree.
(20) The term "collective investment property" shall mean the property of a collective
investment scheme, which includes the property
of an investment trust, the property
of an investment company, the property of an investment limited liability company,
the property
of an investment limited partnership company, the property of an
investment association, or the property of an undisclosed investment
association.
(21) The term "collective investment securities" shall mean instruments by which the equity
shares in a collective
investment scheme (referring to the beneficial interest in the
case of an investment trust) are indicated.
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ORDER AND APPROVALCHAPTER I
(22) The term "collective investment agreement" shall mean an agreement that provides
for the organization and management of a collective
investment scheme and the rights
and duties of investors therein, which includes the trust contract of an investment
trust, the
Articles of incorporation of an investment company, an investment limited
liability company, or an investment limited partnership
company, or the association
agreement of an investment association or an undisclosed investment association.
(23) The term "general
meeting of collective investors" shall mean a decision-making
body composed of all investors in a collective investment scheme,
which includes
the general meeting of beneficiaries, the general meeting of shareholders, the general
meeting of partners, or the
general meeting of undisclosed members.
(24) The term "trust" shall mean a trust as defined in Article 1 (2) of the Trust Act.
Article 10 (Relation to other Acts)
(1) Except as specifically provided for in other Acts, all financial investment businesses
shall be governed by the provisions of
this Act.
(2) Article 246 of the Criminal Act shall not apply to a financial investment business
entity in the carrying out of its financial
investment business activities.
(3) Article 6-2 of the Issuance and Distribution of Electronic Bills Act shall not apply
to cases
where corporate commercial papers are issued.
PART II FINANCIAL INVESTMENT BUSINESS
SECTION 1 Establishment and Supervision
Article 11 (Prohibition against Business Activities without Authorization)
No one may engage in financial investment business (excluding
investment advisory
business and discretionary investment business; hereafter the same shall apply in this
Section) without authorization
(including authorization for changes) for financial
investment business under this Act.
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Article 12 (Authorization for Financial Investment Business)
(1) An entity that wishes to engage in financial investment business
shall select all or
part of its business units defined by Presidential Decree (hereinafter referred to as
"authorized business
units"), by specifying the constituents enumerated in the following
subparagraphs, and shall obtain authorization for a single financial
investment business
from the Financial Services Commission: 1. The type of financial investment business (referring to investment trading business,
investment brokerage business, collective
investment business, and trust business,
and also including underwriting business in the category of investment trading
businesses);
2. The range (referring to securities, exchange-traded derivatives, and over-the-counter
derivatives, including state bonds, corporate
bonds, and other instruments specified
by Presidential Decree in the category of securities, and also including derivatives
based
on underlying assets of stocks and other instruments specified by Presidential
Decree in the category of derivatives) of financial
investment instruments (referring
to the type of collective investment scheme under Article 229 in cases of collective
investment
business, or referring to the trust property under subparagraphs of Article
103 (1) in cases of trust business);
3. The class of investors (referring to the classification of professional investors and
ordinary investors; hereinafter the same
shall apply).
(2) An entity that wishes to obtain authorization for financial investment business under
paragraph (1) shall satisfy
all of the following requirements:
1. An entity shall fall under any of the following items. Provided, that an investment
brokerage business entity willing to operate
an electronic securities brokerage
business under Article 78 shall be a stock company under the Commercial Act
and a member of
the Korea Exchange:
(a) A stock company under the Commercial Act or one of the financial institutions
specified by Presidential Decree;
(b) A foreign financial investment business entity (referring to a person who
operates business corresponding to financial investment
business in a foreign
country in accordance with the acts and subordinate statutes of the foreign
country), who has installed a
branch office or any other business office
necessary for carrying on financial investment business consistent with the
business
it currently operates in the foreign country;
512 Ministry of Government Legislation
2. An entity shall have its own equity capital equivalent to or more than the amount
set by Presidential Decree, which shall be at
least 500 Million Won for each
authorized business unit;
3. An entity shall have a feasible and sound business plan;
4. An entity shall be equipped with human resources, an electronic computer system,
and other physical facilities adequate for protecting
investors and running financial
investment business in which it intends to engage;
5. None of its executive should fall under any of the subparagraph in Article 24;
6. The major shareholders or a foreign financial investment business entity shall meet
the requirements set forth under the following
categories:
(a) In cases of subparagraph 1 (a), its largest shareholder (including shareholders
who are specially related persons
of the largest shareholder; and where the
largest shareholder is a corporation, persons who exercise de facto control over
the
matters material to the management of the corporation, as specified by
Presidential Decree, shall be included herein) shall have
adequate investing
capabilities, good financial standing and social credibility;
(b) In cases of subparagraph 1 (b), the foreign
financial investment business entity
shall have adequate investing capabilities, good financial standing and social
credibility.
6-2. An entity shall have good financial standing and social credibility prescribed by
Presidential Decree.
7. An entity shall have a system for preventing conflicts of interest between the
financial investment business entity and investors,
as well as between a specific
investor and other investors.
(3) Further details necessary for fulfilling requirements for authorization under paragraph
(2) shall be prescribed by Presidential
Decree.
Article 13 (Application for Authorization and Examination)
(1) An entity that wishes to obtain authorization for a financial investment
business under
Article 12 (1) shall file an application for authorization with the Financial Services
Commission.
to determine whether authorization for the financial investment business shall be
granted, and shall notify the applicant in writing
of its decision and the grounds thereof,
without delay. In such cases, the Commission may demand that the applicant submit
a supplementary
application with proper correction, if there is any deficiency in an
application for authorization.
(5) An entity that has obtained authorization for a financial investment business with
conditions attached therewith pursuant to
paragraph (4) may file an application for
revocation of, or revision to, such conditions with the Financial Services Commission,
due to a change in circumstances or any other justifiable ground. In such cases, the
Financial Services Commission shall make a
decision on whether to revoke or revise
the attached conditions within two months, and shall notify the applicant in writing
of
its decision without delay. 1. The contents of authorization for the financial investment business;
2. The conditions attached to authorization for the financial investment business
(limited to cases where such conditions are attached
therewith); and
3. The contents of revocation of, or revision to, the conditions attached to authorization
for the financial investment business
(limited to cases where such conditions have
been revoked or revised).
(7) The matters concerning the application for authorization under paragraphs (1) to (6),
including mandatory descriptions in the
application for authorization, its accompanying
documents, and other necessary matters, including the method and procedure for an
examination for authorization, shall be prescribed by Presidential Decree.
514 Ministry of Government Legislation
Article 14 (Preliminary Authorization)
(1) An entity that wishes to obtain authorization for a financial investment business under
Article 12 (hereafter referred to as
"final authorization" in this Article) may file an
advance application for a preliminary authorization with the Financial Services
Commission.
(3) In calculating the examination period under paragraph (2), the duration for correcting
a deficiency in the application for preliminary
authorization, or other duration specified
by Ordinance of the Prime Minister shall not be included in the examination period.
(4) The Financial Services Commission may, when granting a preliminary authorization
pursuant to paragraph (2), attach conditions
as may be necessary for securing soundness
in management and protecting investors.
paragraph, referring to the mitigated requirements prescribed by Presidential Decree), while
running financial investment business
with proper authorization under Article 12.
Article 16 (Addition of Business Activities and Revision to Authorization)
(1) Each financial investment business entity shall,
whenever it wishes to operate a
financial investment business for any other business unit subject to authorization in
addition
to the business unit already authorized pursuant to Article 12, obtain
authorization on changes from the Financial Services Commission
in accordance with
Articles 12 and 13. In such cases, Article 14 shall apply.
(2) In granting authorization on changes pursuant to paragraph (1), the mitigated
requirements prescribed by Presidential Decree
shall apply to requirements for
authorization under Article 12 (2) 6, notwithstanding the provisions of the said
subparagraph.
Article 18 (Registration of Investment Advisory Business or Discretionary
Investment Business)
(1) An entity that wishes to engage in investment advisory business or discretionary
investment business shall select all or part
of the business units prescribed by law
(hereinafter referred to as "registered business units"), by specifying the items set
forth
in the following subparagraphs, and shall register each financial investment
business with the Financial Services Commission:
1. The investment advisory business or the discretionary investment business;
2. The range of financial investment instruments (referring to securities, exchange-traded
derivatives, and over-the-counter derivatives);
3. The class of investors.
516 Ministry of Government Legislation
(2) An entity that wishes to register financial investment business under paragraph (1)
shall satisfy all the requirements set forth
in the following subparagraphs:
1. An entity shall fall under any of the following items. Provided, that the same shall
not apply to a foreign investment advisory
business entity (referring to a person
who currently operates a business, consistent with investment advisory business
in a foreign
country in accordance with the acts and subordinate statutes of the
foreign country; hereinafter the same shall apply) or a foreign
discretionary
investment business entity (referring to a person who currently operates a business,
consistent with discretionary
investment business in a foreign country in accordance
with the acts and subordinate statutes of such foreign country; hereinafter
the same
shall apply) who operates a business directly engaging domestic residents in a
foreign country or investment advisory
business or discretionary investment
business, via any telecommunications medium:
(a) A stock company under the Commercial Act;
(b) A foreign investment advisory business entity that has installed a branch office
or any other business office necessary for
carrying on investment advisory
business;
(c) A foreign discretionary investment business entity that has installed a branch
office or any other business office necessary
for carrying on discretionary
investment business;
2. An entity shall have equity capital equivalent to, or more than, the amount set
by Presidential Decree, which shall be at least
100 Million Won for each registered
business unit;
3. An entity shall retain professional advisors for investment recommendation (referring
to the professional advisors for investment
recommendation under Article 286 (1)
3 (a); hereinafter the same shall apply) or fund managers (referring to the fund
managers
under Article 286 (1) 3 (c); hereinafter the same shall apply) according
to the classifications of the following items. In such
cases, any entity specified
in the proviso to subparagraph 1 above shall be deemed to have met all relevant
requirements if it
secures human resources corresponding to the requirements for
professional advisors for investment recommendation or fund managers
in its own
country, the number of which shall be equivalent to, or more than, the number
set forth in the following items:
(a) An investment advisory business entity shall retain professional advisors for
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investment recommendation, the number of which shall be equivalent to, or
more than, the number prescribed by Presidential Decree;
(b) A discretionary investment business entity shall retain fund managers, the
number of which shall be equivalent to, or more
than, the number prescribed
by Presidential Decree;
4. No executive may fall under any of the subparagraph in Article 24;
5. The major shareholders, or the foreign investment advisory business entity or foreign
discretionary investment business entity
shall meet all the requirements under the
following classifications:
(a) In cases of subparagraph 1 (a), major shareholders (referring to major shareholders
as defined in Article 12 (2) 6 (a)) shall
have good social credibility prescribed
by Presidential Decree;
(b) In cases of the proviso to subparagraph 1 and items (b) and (c) of the same
subparagraph, the foreign investment advisory business
entity or foreign
discretionary investment business entity shall have good social credibility
prescribed by Presidential Decree;
5-2. An entity shall have good financial standing and social credibility prescribed by
Presidential Decree;
6. An entity shall have a system for preventing conflicts of interest between the
financial investment business entity and investors,
as well as between a specific
investor and other investors, in compliance with the requirements prescribed by
Presidential Decree.
Article 19 (Application for Registration)
(1) An entity that wishes to register financial investment business under Article 18 shall
file a registration application with
the Financial Services Commission.
(2) The Financial Services Commission, within two months from receiving a registration
application filed in accordance with paragraph
(1), shall examine details of the
application in order to determine whether to approve the registration of the financial
investment
business, and the Commission shall notify the applicant in writing of its
decision and the grounds thereof without delay. In such
cases, the Commission may
demand that the applicant make a supplementary correction of any deficiencies in
the registration application.
(3) In calculating the period for examination under paragraph (2), the duration for
correcting a deficiency in the registration
application, or other duration specified by
Ordinance of the Prime Minister shall not be included in the period for examination.
(4) In making a decision whether to approve the registration of the financial investment
business under paragraph (2), the Financial
Services Commission shall not reject such
registration, unless any of the following grounds exist:
1. The applicant fails to meet the requirements for registration of financial investment
business under Article 18 (2);
2. The registration application under paragraph (1) contains false information;
3. The applicant has not complied with the demand for correction under the latter
part of paragraph (2).
(5) The Financial Services Commission shall, upon making a decision to approve the
registration of the financial investment business
under paragraph (2), make an entry
of the necessary descriptions in the register of the investment advisory business entities
or
in the register of the discretionary investment business entities, and shall give public
notice of the details of such registration
through the official gazette, its Internet
homepage, or any other medium.
Article 21 (Addition of Business Activities and Revision to Registration)
(1) Each financial investment business entity shall, whenever
it wishes to add another
business unit subject to registration to the business unit already registered pursuant
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to Article 18 while carrying on the financial investment business, make a revised
registration with the Financial Services Commission
in accordance with Articles 18
and 19.
(2) In making a revised registration pursuant to paragraph (1), the mitigated requirements
prescribed by Presidential Decree shall
apply to requirements for registration under
Article 18 (2) 5, notwithstanding the provisions of the said subparagraph.
Article 22 (Scope of Application)
This Chapter shall not apply to an entity that falls under any of the following subparagraphs
and that concurrently operates a financial
investment business (hereinafter referred to as
"concurrently-run financial investment business entity"):
1. A financial institution under Article 2 of the Banking Act and a credit business division
treated as a financial institution under
Article 5 of the same Act (hereinafter referred
to as "bank");
2. An insurance company under Article 2 of the Insurance Business Act (hereinafter
referred to as "insurance company");
3. Other financial institutions or similar specified by Presidential Decree.
Article 23 (Approval on Change of Major Shareholders)
(1) A person who intends to become a major shareholder (referring to a major shareholder
as defined in Article 12 (2) 6 (a), and
the persons specified by Presidential Decree
shall be excluded here from; hereafter the same shall apply in this Article) of a financial
investment business by acquiring stocks issued by the financial investment business
entity (excluding an investment advisory business
entity or discretionary investment
business entity) shall meet the requirements for major shareholders under Article 12
(2) 6 (a)
prescribed by Presidential Decree to ensure soundness in management, and
shall obtain prior approval of the Financial Services Commission.
(2) The Financial Services Commission may issue an order to dispose of stocks acquired
without approval required under paragraph
(1) within a fixed period of up to six
months.
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(3) No person who has acquired stocks without the approval required under paragraph
(1) may exercise his/her voting right for the
portion of stocks acquired without such
approval.
(4) Each investment advisory business entity and discretionary investment business entity
shall, when any of its major shareholders
is changed, submit a report of such change
to the Financial Services Commission within two weeks. In such cases, it shall be
deemed
that a person who concurrently operates an investment advisory business or
discretionary investment business and financial investment
business under any of
Article 6 (1) 1 through 3 and 6 has submitted the report when it obtains approval
under paragraph (1).
No person who falls under any of the following subparagraphs shall become an executive
of a financial investment business entity
(including a person falling under Article 401-2
(1) 3 of the Commercial Act who is prescribed by Presidential Decree; hereafter
the same
shall apply in this Article), and an executive shall lose his/her office if he/she falls
hereunder after taking the office:
1. A minor, an incompetent, or a quasi-incompetent;
2. A person declared bankrupt, not yet reinstated;
3. A person for whom five years have not elapsed since the completion (or deemed
completion) of, or exemption from, a sentence of
imprisonment without prison labor
or heavier punishment, pronounced against him/her, or payment of a fine for negligence
or greater,
imposed upon him/her pursuant to this Act, other finance-related acts and
subordinate statutes specified by Presidential Decree
(hereafter referred to as
"finance-related acts and subordinate statutes" in this Article) or finance-related acts
and subordinate
statutes of a foreign country (referring to acts and subordinate statutes
of a foreign country, similar to this Act or any finance-related
acts and subordinate
statutes; hereafter the same shall apply in this Article);
4. A person against whom a sentence of suspension of imprisonment without labor, or
greater punishment, was pronounced and who is
still under a period of suspension;
5. A person who was once an executive or an employee of a corporation or company
whose business authorization, authorization or registration
was revoked pursuant to this
Act, other finance-related acts and subordinate statutes, or finance-related acts and
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subordinate statutes of a foreign country (limited to a person who is directly or
substantially liable for the occurrence of the
cause or event that gave rise to the
revocation as specified by Presidential Decree) and for whom five years have not elapsed
since
such revocation;
6. A person for whom five years have not elapsed since he/she was removed or dismissed
pursuant to this Act, other finance-related
acts and subordinate statutes, or finance-related
acts and subordinate statutes of a foreign country;
7. A person against whom a notice was given that he/she, as a retired executive or
employee, have been subjected to a disposition
of demand for removal or dismissal
pursuant to this Act or other finance-related acts and subordinate statutes if he/she was
in
service or in employment at the time of such notice, and for whom five years have
not elapsed since such notice was delivered (or
seven years since the date of his/her
retirement or resignation, in cases where the period of five years after the date of such
notice exceeds the period of seven years after such retirement or resignation);
8. A person prescribed by Presidential Decree as likely to undermine the protection of
investors or sound trade practice.
Article 25 (Appointment of Outside Directors and Composition of Board of
Directors)
(1) Each financial investment business entity (excluding the financial investment business
entities specified by Presidential Decree,
considering the size of assets; hereafter the
same shall apply in this Article) shall have three or more Outside Directors, and
the
number of Outside Directors shall account for at least one half of the total number
of directors.
(2) Each financial investment business entity shall organize a committee under Article
393-2 of the Commercial Act for recommendation
of candidates for Outside Directors
(hereinafter referred to as the "committee on the recommendation of candidates for
Outside
Directors"). In such cases, the committee shall have Outside Directors as its
members, who shall account for one half or more of
the total number of committee
members.
(3) The latter part of paragraph (2) shall not apply when a financial investment business
entity that is to appoint Outside Directors
as it comes to fall under the requirements
under paragraph (1) for the first time appoints such Outside Directors.
(4) A financial
investment business entity shall, whenever it intends to appoint an outside
director at a general meeting of shareholders, appoint
such director from among the
522 Ministry of Government Legislation
persons recommended by the committee on the recommendation of candidates for
Outside Directors. In such cases, the committee on
the recommendation of candidates
for Outside Directors shall, when recommending candidates for Outside Directors,
include candidates
recommended by shareholders who satisfy the requirements for
exercising the shareholder's proposal right set forth in Article 29
(6).
(5) A person who falls under any of the following subparagraphs shall not qualify as
an outside director of a financial investment
business entity under paragraph (1), and
an outside director shall lose his/her office if he/she comes to fall under any of the
following subparagraphs after being appointed as an outside director Provided, that
in applying subparagraph 2, if a person comes
to fall under a specially related person
of the largest shareholder as he/she becomes an outside director, he/she shall qualify
as an outside director:
1. The largest shareholder;
2. A specially related person of the largest shareholder;
3. A significant shareholder, his/her spouse, and his/her lineal ascendants and descendants;
4. A person who is a standing executive or a full-time employee of the company
or an affiliated company (referring to an affiliated
company as defined in the
Monopoly Regulation and Fair Trade Act; hereinafter the same shall apply) or who
was a standing executive
or a full-time employee during the preceding two years;
5. The spouse or lineal ascendants or descendants of an executive of the company;
6. A person who is a standing executive or a full-time employee of a corporation,
which has a significant business relationship with
the company, as specified by
Presidential Decree, or which is a competitor of the company in business, or which
has a cooperative
relationship with the company, or a person who was a standing
executive or a fulltime employee of such corporation during the preceding
two years;
7. A person who is a standing executive or a full-time employee of a company, of
which any executive or employee of the company concurrently
serves as a
non-standing director; and
8. A person who has a difficulty in performing the duties of an outside director
faithfully due to any other reason or who possesses
a potential to influence the
management of the company, as specified by Presidential Decree.
(6) Where the number of outstanding
directors does not comply with the requisites for
the formation of the board of directors under paragraph (1), owing to retirement
or
death of an outside director or any other unexpected cause or event, the financial
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investment business entity shall fill such vacancy at the first general meeting of
shareholders held after such cause or event occurs
for the purpose of coming into
compliance with the requisites of paragraph (1).
Article 26 (Formation of Audit Committee)
(1) Each financial investment business entity (excluding those specified by Presidential
Decree, considering the size of assets,
etc.; hereafter the same shall apply in this
Article) shall possess an audit committee under Article 415-2 of the Commercial Act
(hereinafter referred to as the "audit committee").
(2) The audit committee shall comply with the following requisites:
1. Two-thirds or more of all committee members shall be Outside Directors;
2. At least one of the committee members shall be an expert in accounting or finance
as prescribed by Presidential Decree; and
3. The representative of the audit committee shall be an outside director.
(3) A person who falls under any of the following subparagraphs
may not become a
non-outside-director member of the audit committee, and a non-outside-director
member of the audit committee shall
lose his/her office if he/she comes to fall under
any of the following subparagraphs after being appointed as a member of the audit
committee. Provided, that a person who currently serves or served as a member of
the audit committee and is not a standing auditor
or an outside director of the company
may become a non-outside-director member of the audit committee, notwithstanding
subparagraph
2:
1. A significant shareholder of the company;
2. A person who is a standing executive or a full-time employee of the company
or a person who was a standing executive or a full-time
employee during the
preceding two years; and
3. A person who possesses a potential to influence the management of the company or
who has a difficulty in faithfully performing
his/her duties as a non-outside-director
member of the audit committee due to any other reason, as specified by Presidential
Decree.
(4) Where the number of Outside Directors does not comply with the requisites for the
formation of an audit committee under paragraph
(2), owing to retirement or death
of an outside director or any other unexpected cause or event, the financial investment
business
entity shall fill such vacancy at the first general meeting of shareholders
524 Ministry of Government Legislation
held after such cause or event occurs in order to come into compliance with the
requisites of paragraph (2).
(5) The proviso to Article 415-2 (2) of the Commercial Act shall not apply to the formation
of the audit committee under paragraph
(1).
(6) Article 409 (2) and (3) of the Commercial Act shall apply mutatis mutandis to the
appointment of Outside Directors who become
members of the audit committee.
Article 27 (Standing Auditors)
(1) Each financial investment business entity (excluding those specified by Presidential
Decree, considering the size of assets,
etc.) shall have one or more standing auditors.
Provided, that it shall not have a standing auditor if there is an audit committee
formed
in accordance with this Act (including cases where a financial investment business
entity has established an audit committee
in compliance with the requisites of Article
26 (2) and (3), although it is not obligated to have an audit committee).
(2) Article 26 (3) shall apply mutatis mutandis to the qualifications for standing auditors
under paragraph (1).
Article 28 (Internal Control Guidelines and Compliance Officer)
(1) Each financial investment business entity shall establish appropriate
guidelines and
procedures that shall be complied with when its executives or employees perform
their duties (hereinafter referred
to as "internal control guidelines") so as to abide
by the acts and subordinate statutes, manage its assets in a sound manner, prevent
conflicts of interest, and protect investors in every aspect.
(2) A financial investment business entity (excluding an investment
advisory business
entity or a discretionary investment business entity as specified by Presidential Decree,
considering the size
of assets, etc.; hereafter the same shall apply in this Article) shall
have one or more persons, who shall be responsible for monitoring
compliance with
the internal control guidelines, investigating violations of the internal control
guidelines, and reporting to
the audit committee or the auditors (hereinafter referred
to as "compliance officers").
(3) Each financial investment business entity shall, whenever intending to appoint or
dismiss a compliance officer, refer the case
to the board of directors for resolution.
(4) Each compliance officer shall meet all of the following requirements, and a compliance
officer shall lose his/her position if he/she fails to meet the requirements under
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subparagraph 2 or 3 after being appointed as compliance officer:
1. Each compliance officer shall have any of the following professional experience.
Provided, that a person shall not be qualified
for the position of compliance officer,
if five years have not passed since the person falling under any of items (a) through
(d)
retired or resigned from an institution specified in item (d):
(a) A person who has a total of at least ten years professional experience
working
for the Bank of Korea or the institutions subject to audit under Article 38 of
the Act on the Establishment of Financial
Services Commission(including
foreign financial institutions corresponding to such institutions);
(b) A holder of a master's or
higher degree in a finance-related area, who has
a total of at least five years professional experience working for research
institutes,
universities, or colleges in the position of researcher, full-time
lecturer, or higher;
(c) A holder of a qualification for attorney-at-law or certified public accountant,
who has a total of at least five years professional
experience engaging in a
business related to the qualification; and
(d) A person who has a total of at least five years professional experience working
for the Ministry of Strategy and Finance, the
Financial Services Commission,
the Securities and Futures Commission, the Financial Supervisory Service
(referring to the Financial
Supervisory Service under the Act on the Establishment
of Financial Services Commission; hereinafter the same shall apply), the
Korea
Exchange, the Association, or institutions specializing in finance-related legislation;
2. No compliance officer may fall under any of subparagraphs of Article 24; and
3. No compliance officer may have any record of having been subjected to a disposition
equivalent to, or greater than, a warning
of reprimand under Article 422 (1) 3 hereof
or a demand for censure under paragraph (2) 4 of the same Article from the Financial
Services Commission, the Governor of the Financial Supervisory Service
(hereinafter referred to as the "Governor of the Financial
Supervisory Service"),
or any other institution specified by Presidential Decree due to a violation of this
Act or any finance-related
acts and subordinate statutes specified by Presidential
Decree during the preceding five years.
(5) A compliance officer shall perform his/her duties with due fiduciary care, and shall
not take charge of a job engaging in the
following work:
1. Management of the proprietary assets of the financial investment business entity;
526 Ministry of Government Legislation
2. Matters related to the financial investment business that are operated by the financial
investment business entity and any work
incidental thereto; and
3. Work operated by the financial investment business entity pursuant to Article 40.
(6) A financial investment business entity shall
ensure that the compliance officer can
perform his/her duties independently.
(7) A financial investment business entity shall, whenever it appoints or dismisses its
compliance officer, notify the Financial
Services Commission thereof.
(8) Executives or employees of each financial investment business entity shall, whenever
the compliance officer demands the submission
of data or information in the course
of performing his/her duties, comply with such demand in good faith.
(9) No financial investment
business entity shall unfairly prejudice a person who has
served as compliance officer in relation to personnel management decisions
on any
ground related to the performance of his/her duties.
(10) Other necessary matters concerning the guidelines for internal
control and the
compliance officer shall be prescribed by Presidential Decree.
Article 28-2 (Person in Charge of Derivatives Business)
(1) A financial investment business entity as prescribed by Presidential Decree taking into
consideration the size of asset, types
of financial investment business, etc.
(notwithstanding Article 22, including concurrently-run financial investment business
entities)
shall appoint not less than one person in charge of derivatives business
prescribed by Presidential Decree as a standing officer
(including persons falling under
each of the subparagraphs of Article 401-2 (1) of the Commercial Act), and, in cases
of the appointment
and change of a person in charge of derivatives business, shall
report the fact to the Financial Services Commission.
(2) A person
in charge of derivatives business under paragraph (1) shall perform duties
falling under each of the following subparagraphs:
1. Management and supervision of the establishment and implementation of procedures
and standards necessary for the protection of
investors in derivatives;
2. Approval of transactions of over-the-counter derivatives; and
3. Others duties, as prescribed by Presidential Decree.
[This Article Newly Inserted by Act No. 9407, Feb. 3, 2009]
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Article 29 (Minority Shareholder's Rights)
(1) Any person who has owned (including cases where the person has acquired proxies
for exercising a shareholder's right or where
two or more shareholders jointly exercise
a shareholder's right; hereafter the same shall apply in this Article) 5/100,000 or more
of the total outstanding stocks of a financial investment business entity (excluding
financial investment business entities specified
by Presidential Decree, considering the
size of their assets, etc.; hereafter the same shall apply in this Article) continuously
for the preceding six months, may exercise the shareholder's right provided for in
Article 403 of the Commercial Act (including
cases to which the same Article shall
apply mutatis mutandis pursuant to Articles 324, 415, 424-2, 467-2 and 542 of the
commercial
Act).
(2) Any person who has owned 250/1,000,000 (or 125/1,000,000 in the case of a financial
investment business entity specified by
Presidential Decree) or more of the total
outstanding stocks of a financial investment business entity continuously for the
preceding
six months, may exercise the shareholder's right provided for in Article
402 of the Commercial Act(including cases to which the
same Article shall apply
mutatis mutandis pursuant to Article 542 of the Commercial Act).
(3) Any person who has owned 50/100,000
(or 25/100,000 in the case of a financial
investment business entity specified by Presidential Decree) or more of the total
outstanding
stocks of a financial investment business entity continuously for the
preceding six months, may exercise the shareholder's right
provided for in Article
466 of the Commercial Act.
(4) Any person who has owned 250/100,000 (or 125/100,000 in the case of a financial
investment business entity specified by Presidential
Decree) or more of the total
outstanding stocks of a financial investment business entity continuously for the
preceding six months,
may exercise the shareholder rights provided for in Articles
385 and 539 of the Commercial Act (including cases to which the same
Article shall
apply mutatis mutandis pursuant to Article 415 of the same Act).
(5) Any person who has owned 150/10,000 (or 75/10,000
in the case of a financial
investment business entity specified by Presidential Decree) or more of the total
outstanding stocks
of a financial investment business entity continuously for the
preceding six months, may exercise the shareholder rights provided
for in Articles
366 of the Commercial Act (including cases to which the same Article shall apply
mutatis mutandis pursuant to Article
542 of the same Act; hereafter the same shall
apply in this paragraph) and 467 of the Commercial Act. In such cases, the exercise
528 Ministry of Government Legislation
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of the shareholder's right under Article 366 of the same Act shall be based on voting
stocks.
(6) Any person who has owned 50/10,000 (or 25/10,000 in the case of a financial
investment business entity specified by Presidential
Decree) or more of the total
outstanding voting stocks of a financial investment business entity continuously for
the preceding
six months, may exercise the shareholder rights provided for in Article
363-2 of the Commercial Act.
(7) The provisions of paragraph (1) through (6) shall not affect the exercise of a minority
shareholder's right under each relevant
provision of the Commercial Act stated in
each of the said paragraphs.
(8) Any shareholder under paragraph (1) may, if he/she wins a lawsuit filed by him/herself
in accordance with Article 403 of the
Commercial Act (including cases to which the
same Article shall apply mutatis mutandis pursuant to Articles 324, 415, 424-2, 467-2,
or 542 of the Commercial Act), claim litigation expenses from the financial investment
business entity, and all other expenses
incurred by him/her in connection with the
lawsuit.
SECTION 1 Establishment and Supervision
Article 30 (Maintenance of Financial Soundness)
(1) A financial investment business entity (excluding business entities that operate a
financial investment business concurrently
and other financial investment business
entities specified by Presidential Decree; hereafter the same shall apply in this Article)
shall maintain the enumerated amounts, calculated by subtracting the sum under
subparagraph 2 from the sum under subparagraph 1
(hereinafter referred to as "net
operating capital"), to the level of the amount equivalent to or more than the aggregate
of the
risks inherent to the assets and liabilities of the financial investment business
entity and accompanying its business, as converted
into a monetary value (hereinafter
referred to as "gross risks"): 1. Capital, reserves, and other amount prescribed by Ordinance of the Prime Minister;
and
2. Fixed assets and assets difficult to make liquid in the short term, as specified by
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Ordinance of the Prime Minister.
(2) Further specific guidelines and formula for calculation of the net operating capital
and gross risks under paragraph (1) shall
be determined by the Financial Services
Commission, and public notice of such shall be provided.
(3) A financial investment business entity shall report in writing to the Financial Services
Commission the amount calculated by
subtracting gross risks from net operating capital
as of the end of every quarter of the year within the period of time specified
by
Presidential Decree, not exceeding 45 days from the end of the quarter, and keep
it in its head office, branch offices, and
other sales offices for three months from
the time limit for reporting, and disclose it to the public through its Internet homepage,
etc.
Article 31 (Guidelines for Soundness in Business Management)
(1) A financial investment business entity (excluding business entities
that operate a
financial investment business concurrently; hereafter the same shall apply in this
Section) shall comply with guidelines
for soundness in business management
determined by the Financial Services Commission, and provided by public notice, in
relation
to the following matters to maintain soundness in business management, and
shall establish and implement a system appropriate for
such compliance:
1. The ratio of net worth to total capital, and other matters concerning the adequacy
of capital;
2. Matters concerning the soundness of assets;
3. Matters concerning liquidity; and
4. Other matters prescribed by Presidential Decree as may be necessary for securing
soundness in business management.
(2) In establishing guidelines for soundness in business management pursuant to paragraph
(1), the Financial Services Commission
may prescribe different guidelines applicable
to each financial investment business, considering the type, etc. of financial investment
business operated by each business entity.
shall be conducted for financial investment business entities prescribed by Presidential
Decree taking into consideration the size
of asset, etc.
(4) If any financial investment business entity fails to meet guidelines under paragraphs
(1) and (2) and violates Article 30 (1)
or (2), the Financial Services Commission
may order such entity to take measures necessary for securing the soundness in business
management, such as increasing the capital and placing restriction on distribution of
dividends.
(1) Each financial investment business entity shall comply with the following in
accounting: 1. The fiscal year shall be the term specified by Ordinance of the Prime Minister
for each type of financial investment business;
2. The proprietary property of each financial investment business entity, the trust
property, and other property of investors specified
by Ordinance of the Prime
Minister shall be clearly separated in accounting; and
3. A financial investment business entity shall follow the general accounting principles
of financial investment and standards for
accounting under Article 13 of the Act
on External Audit of Stock Companies Act on External Audit of Stock Companies
determined
by the Financial Services Commission, and provided by public notice,
after going through a resolution of the Securities and Futures
Commission.
(2) Matters not provided for in paragraph (1) in relation to the accounting of the proprietary
property of a financial
investment business entity, types of account titles and order
of arrangement, and other necessary matters shall be determined by
the Financial
Services Commission, and provided by public notice.
Article 33 (Business Report and Public Disclosure)
(1) A financial investment business entity shall prepare business reports for
three, six,
nine, and twelve months respectively from the commencement date of each business
year, and shall submit them to the
Financial Services Commission within the period
of time prescribed by Presidential Decree, not exceeding 45 days after the lapse
of
each relevant term as specified above.
submitted under paragraph (1) containing the material facts of each business report
for public disclosure, in the head office, branch
offices, and sales offices for one
year from the date on which the report is submitted to the Financial Services
Commission; it
shall also disclose such report to the public through its Internet
homepage, etc.
SECTION 2 Systems Related to Deposit of Securities
Article 34 (Restriction on Trading with Major Shareholders)
(1) Any financial
investment business entity (excluding concurrently-run financial
investment business entities; hereafter the same shall apply in
this Section) shall not
commit any of the following acts. Provided, that the same shall not apply to cases
where it is necessary
for exercising rights, such as security right, where manipulation
for stabilization under Article 176 (3) 1 or market creation under
subparagraph 2 of
the same paragraph is conducted, or where it is otherwise required for carrying on
the financial investment business
efficiently, as prescribed by Presidential Decree, to
the extent that does not undermine the soundness of the financial investment
business
entity. In such cases, the Financial Services Commission may determine the holding
period for each of the following subparagraphs
and provide it by public notice:
1. An act of owning securities issued by a major shareholder of the financial investment
business entity;
532 Ministry of Government Legislation
2. An act of owning stocks, bonds, or promissory notes (limited to those issued to
raise funds required by an enterprise for business)
issued by any specially related
person (excluding major shareholders of the financial investment business entity)
of the financial
investment business entity, as specified by Presidential Decree.
Provided, that the same shall not apply in cases where the above
issuance of stock
are owned within the limit of the ratio prescribed by Presidential Decree; and
3. Any other act that is likely to undermine the sound management of the assets of
the financial investment business entity, as prescribed
by Presidential Decree.
(2) No financial investment business entity shall grant credit (referring to lending an asset
possessing
economic value, such as money and securities, guaranteeing performance
of an obligation, purchasing securities with a view to providing
financial support,
or any other direct or indirect transaction accompanying a credit risk, as specified
by Presidential Decree;
hereafter the same shall apply in this Section) to its major
shareholders (including their specially related persons; hereafter
the same shall apply
in this Article), and no major shareholder shall receive a credit grant from his/her
financial investment
business entity. Provided, that such credit grant may be allowed
where there is no possibility of undermining the soundness of the
financial investment
business entity, as prescribed by Presidential Decree.
(3) Each financial investment business entity shall,
when it intends to conduct any act
under the provisos of paragraph (1) 2 or (2) (excluding any act specified by Presidential
Decree),
submit the case, in advance, to the board of directors for resolution. In such
cases, the resolution of the board of directors shall
be adopted by a unanimous vote
of all incumbent directors.
(4) Any financial investment business entity that conducted an act falling under the
provisos to paragraph (1) 2 or (2) (excluding
any act specified by Presidential Decree)
shall report it to the Financial Services Commission without delay, and shall disclose
it to the public through its Internet homepage, etc.
(5) Each financial investment business entity shall prepare and submit a quarterly
comprehensive report to the Financial Services
Commission on the matters specified
by Presidential Decree containing matters subject to reporting under paragraph (4)
and shall
disclose it to the public through its Internet homepage, etc.
(6) The Financial Services Commission may, if it suspects that a financial investment
business entity or its major shareholder violated
any provisions of paragraphs (1)
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through (5), order the financial investment business entity or its major shareholders
to submit materials as may be necessary. 1. Demand that the financial investment business entity furnish him/her with any data
or information not disclosed to outsiders for
the purpose of exercising undue influence.
Provided, that this shall not apply to cases that fall within the exercise of a right
under
Article 29 (3) hereof or Article 466 of the Commercial Act;
2. Exercise undue influence over personnel or the business management of the financial
investment business entity under an arrangement
made with other shareholders based
on a condition to provide any benefit, such as economic interest; and
3. Any other act similar to those under subparagraphs 1 and 2, as specified by Presidential
Decree.
Article 36 (Order of Financial Services Commission to Submit Materials)
The Financial Services Commission may, if it suspects that
a major shareholder of any
financial investment business entity has violated Article 35, order the financial investment
business
entity or its major shareholders to submit materials as may be necessary.
534 Ministry of Government Legislation
PENALTY SURCHARGECHAPTER IV
SECTION 1 Establishment and Supervision
Sub-Section 1 Investment Association
Article 37 (Duty of Good Faith)
(1) A financial investment business entity shall engage in the financial investment business
in a fair manner in compliance with
the duty of good faith.
(2) No financial investment business entity shall, while carrying on the financial
investment business,
pursue its own interest, or help a third-party pursue his/her
interest, by undermining the interests of its investors without justifiable
reason.
Article 38 (Trade Names)
(1) No person, other than a financial investment business entity, may use the word
"financial investment" or any word in a foreign
language with the same meaning,
as specified by Presidential Decree, in his/her trade name.
(2) No person, other than a person who engages in investment trading business or
investment brokerage business for securities, shall
use the word "securities" or any
word in a foreign language with the same meaning, as specified by Presidential Decree,
in his/her
trade name. Provided, that a collective securities investment scheme under
subparagraph 1 of Article 229 may use the word "securities"
or any word in a foreign
language with the same meaning, as specified by Presidential Decree, in accordance
with Article 183 (1).
(3) No person, other than a person who engages in investment trading business or
investment brokerage business for exchange-traded
derivatives or over-the-counter
derivatives, shall use the word "derivative" or "futures" or any word in a foreign
language with
the same meaning, as specified by Presidential Decree, in his/her trade
name.
(4) No person, other than a collective investment business entity, shall use the word
"collective investment", "investment trust",
or "asset management", or any expression
in a foreign language with the same meaning, as specified by Presidential Decree,
in his/her
trade name. Provided, that an investment trust that is a collective investment
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scheme may use the word "investment trust" or any word in a foreign language with
the same meaning, as specified by Presidential
Decree.
(5) No person, other than an investment advisory business entity, shall use the word
"investment advice" or any word in
a foreign language with the same meaning, as
specified by Presidential Decree, in his/her trade name. Provided, that a real estate
consulting company under the Real Estate Investment Company Act may use the word
"investment consulting" or any word in a foreign
language with the same meaning,
as specified by Presidential Decree.
(6) No person, other than a discretionary investment business entity, shall use the word
"discretionary investment" or any word
in a foreign language with the same meaning,
as specified by Presidential Decree, in his/her trade name.
(7) No person, other than
a trust business entity, may use the word "trust" or any word
in a foreign language with the same meaning, as specified by Presidential
Decree,
in his/her trade name. Provided, that a collective investment business entity or a person
who engages in business under
Article 7 (5) may use the word "trust" or any word
in a foreign language with the same meaning, as specified by Presidential Decree,
in its or his/her trade name.
Article 39 (Prohibition on Lending of Names)
No financial investment business entity may allow any other person to operate a financial
investment business under a lent name.
Article 40 (Financial Investment Business Entity Engaging in Other Financial
Business)
A financial investment business entity (excluding business entities that operate a financial
investment business concurrently and
other financial investment business entities specified
by Presidential Decree; hereafter the same shall apply in this Article) may
operate any
of the following financial businesses, which shall not undermine the protection of investors
or sound trade practice.
In such cases, a financial investment business entity that intends
to engage in a business under subparagraphs 2 through 5 shall
report its intention to the
Financial Services Commission at least seven days before the day it plans to commence
such business:
1. A business of insurance agency or insurance broker under Article 91 of the Insurance
Business Act or any other financial business
specified by Presidential Decree for which
this Act or any finance-related Act and subordinate statute specified by Presidential
536 Ministry of Government Legislation
Decree requires permission, authorization, registration, etc.;
2. A financial business specified by this Act or any finance-related Act and subordinate
statute specified by Presidential Decree,
as one that a financial investment business
entity is allowed to engage in, pursuant to the relevant acts and subordinate statutes;
3. Vicarious performance of a business of the State or a public organization;
4. Money-transfer carried out for an investor using a investor's deposit (referring to an
investor's deposit under Article 74 (1));
and
5. Any other financial business specified by Presidential Decree that has no danger of
undermining the protection of investors or
sound trade practice.
Article 41 (Financial Investment Business Entity Engaging in Incidental Business)
(1) Any financial investment
business entity that intends to engage in any business
incidental to the financial investment business shall report such intention
to the
Financial Services Commission at least seven days before the day it commences the
business. 1. If it undermines the soundness in business management of the financial investment
business entity;
2. If it causes any impediment to the protection of investors in connection with the
engagement in an authorized or registered financial
investment business; and
3. If it undermines the stability of the financial market.
(3) An order of restriction or rectification under paragraph (2) shall
be provided in writing
with specific descriptions of the details and grounds for such order.
(4) The Financial Services Commission
shall provide public notice of the incidental
business reported in accordance with paragraph (1) and the order of restriction or
rectification given pursuant to paragraph (2) through its official website in compliance
with the method and procedure prescribed
by Presidential Decree.
Article 42 (Entrustment of Affairs of Financial Investment Business Entity)
(1) A financial investment business entity may entrust
a third-party with part of the affairs
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that the financial investment business entity runs in relation to the business under
each subparagraph in Article 40 and the incidental
business under Article 41 (1).
Provided, that the affairs specified by Presidential Decree that are likely undermine the
protection
of investors or sound trade practice shall not be entrusted to a third party.
(2) Any financial investment business entity that
entrusts a third-party with any of its
affairs in accordance with the main sentence of paragraph (1) shall make an entrustment
agreement that includes the following terms and conditions, and such agreement shall
be reported to the Financial Services Commission
in compliance with the method and
procedure prescribed by Presidential Decree: 1. Scope of affairs delegated;
2. Restrictions on the trustee's activities;
3. Terms and conditions for maintaining records on the performance of entrusted
affairs; and
4. Other matters specified by Presidential Decree as those necessary for the protection
of investors or sound trade practice.
(3) If any term or condition of the entrustment agreement under paragraph (2) falls under
any of the following, the Financial Services
Commission may place a restriction on
the entrustment of the pertinent affair or issue an order to rectify it:
1. If it undermines the soundness in business management of the financial investment
business entity;
2. If it causes any impediment on the protection of investors;
3. If it undermines the stability of the financial market; and
4. If it disturbs the financial trading order.
(4) If the affair delegated in accordance with paragraph (1) is one of essential affairs
(referring to the affairs specified by Presidential Decree as essential affairs directly
related to the business for which the
financial investment business entity obtained
authorization or completed a registration; hereafter the same shall apply in this
paragraph), the person with whom such essential affair is delegated shall be the one
to hold the authorization or complete the
registration necessary for carrying out the
entrusted affair. In such cases, the person with whom such affair is entrusted shall
be deemed to have obtained authorization or completed a registration, if it is a foreign
financial investment business entity that
satisfies the requirements prescribed by
Presidential Decree.
538 Ministry of Government Legislation
(5) Any person to whom any affair under paragraph (1) is delegate shall not re-delegate
the delegated affair to another third party.
Provided, that such affair may be
re-delegated to another third-party subject to the consent of the primary entrusting
person within
the extent that it shall not undermine the protection of investors, if
it is necessary to do so for carrying out the financial investment
business and if it
is based upon a ground specified by Presidential Decree.
(6) A person who delegates an affair under paragraph
(1) may furnish the person to whom
such affair is delegated with information related to trading of the financial investment
instruments
of investors and other transactions, and information related to the money
and other property deposited by investors in trust within
the scope of the delegated
affair, in compliance with the guidelines prescribed by Presidential Decree.
(7) Each financial investment
business entity that intends to delegate its affairs to another
in accordance with the main sentence of paragraph (1) shall establish
guidelines for
management of delegated affairs concerning the protection of investors' information
and management, assessment,
etc. of risks.
(8) Each financial investment business entity shall state the details of the affairs delegated
in accordance with the main sentence
of paragraph (1) in the contract documents under
Article 59 (1) and the investment prospectus under Article 123 (1), and shall give
notice of any change thereof to investors, whenever there is any affair entrusted or
any change made in the contents, after making
a contract with investors.
(9) Article 756 of the Civil Act shall apply mutatis mutandis to the damages inflicted
on investors
by a person to whom any affair under paragraph (1) is delegated in the
course of carrying on the affair.
(10) Articles 54 and 55 hereof and Article 4 of the Act on Real Name Financial Transactions
and Guarantee of Secrecy shall apply
mutatis mutandis to the case where a person
with whom an affair under paragraph (1) is delegated to operate the delegated affair.
(11) Other matters concerning the guidelines, method and procedure for delegation and
re-delegation of affairs as may be necessary
for the protection of investors or sound
trade practice shall be prescribed by Presidential Decree.
Article 43 (Inspection and
Disposition)
(1) A person to whom an affair is delegated in accordance with Article 42 (1) shall receive
an inspection conducted by the Governor
of the Financial Supervisory Service of its
business and current status of property in connection with the delegated affairs. In
such cases, Article 419 (5) through (7) and (9) shall apply mutatis mutandis.
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(2) If a person to whom any affair is entrusted in accordance with Article 42 (1) falls
under any of the following subparagraphs,
the Financial Services Commission may
order either party to the entrustment contract or both, to cancel or amend the
entrustment
agreement: 1. If the person violated any provision of Articles 54 and 55 hereof, which shall apply
mutatis mutandis pursuant to Article 42 (10)
hereof, or Article 4 (1), and (3) through
(5) of the Act on Real Name Financial Transactions and Guarantee of Secrecy;
2. If the person rejects, interferes with, or evades an inspection under paragraph (1);
3. If the person fails to comply with a demand for a report under Article 419 (5),
which shall apply mutatis mutandis pursuant to
paragraph (1); and
4. If the person falls under any of the subparagraphs of the attached Table 1 (limited
to the grounds related to the delegated affair).
(3) The Financial Services Commission shall record the details of the disposition taken
pursuant to paragraph (2), and shall keep
and maintain such records.
(4) A financial investment business entity or a person to whom an affair is delegated
in accordance with Article 42 (1) (including
a person to whom an affair was delegated
in the past) may make an inquiry to the Financial Services Commission concerning
whether
any disposition under paragraph (2) has been made against him/her and the
details of such disposition, if any.
(6) Article 425 shall apply mutatis mutandis to an order to cancel or amend an entrustment
agreement pursuant to paragraph (2).
Article 44 (Control of Conflicts of Interest)
(1) A financial investment business entity shall probe and assess the likelihood of conflicts
of interest, which may arise between
the financial investment business entity and any
investor or between a specific investor and other investor in connection with the
financial investment business in which it engages, in order to prevent such conflicts
of interest, and it shall control such conflicts
properly in compliance with the method
and procedure prescribed by internal control guidelines.
540 Ministry of Government Legislation
(2) A financial investment business entity shall, if it is anticipated as a result of its probe
and assessment conducted in accordance
with paragraph (1) that there is a likelihood
of conflicts of interest, notify the relevant investors thereof in advance, and shall
commence trading or any other transaction, after reducing the likelihood of a conflict
of interest in compliance with the method
and procedure prescribed by internal control
guidelines to the level that it will cause no impediment to the protection of investors.
(3) No financial investment business entity shall, if it is found difficult to reduce the
likelihood of a conflict of interest
in compliance with paragraph (2), commence trading
or any other transaction.
Article 45 (Cut-off of Exchanges of Information)
(1) If there is a great possibility of conflict of interests between financial investment
businesses operated by a financial investment
business entity (including the management
of its proprietary property; hereafter the same shall apply in this Article), as prescribed
by Presidential Decree, the financial investment business entity shall not commit any
of the following acts:
1. Furnish information related to trading of financial investment instruments or other
information specified by Presidential Decree;
2. Assign any of its executives (excluding the representative director, an auditor, or
a member of the audit committee who is not
an outside director) or employees
to concurrently run offices;
3. Use an office space or an electronic computer system in common in a manner
specified by Presidential Decree; and
4. Other acts specified by Presidential Decree as an act likely to cause a conflict
of interest.
(2) If there is a great possibility of conflict of interests between a financial investment
business entity and its affiliated company
or any company specified by law, as
prescribed by Presidential Decree, the financial investment business entity shall not
commit
any of the following acts:
1. Furnish information related to trading of financial investment instruments or other
information specified by Presidential Decree;
2. Assign any of its executives (excluding non-standing auditors) or employees to
concurrent offices or dispatching him/her to work;
3. Using an office space or an electronic computer system in common in a manner
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specified by Presidential Decree; and
4. Other acts specified by Presidential Decree as an act likely to cause a conflict
of interest.
Sub-Section 2 Undisclosed Investment Associations
Article 46 (Principle of Suitability)
(1) Each financial investment business entity shall confirm whether an investor is an
ordinary investor or a professional investor.
(2) Each financial investment business entity shall obtain information about the investment
purpose, status of property, experience
in investment, etc. of an ordinary investor
through interviews, inquiries, etc. before recommending him/her to make an
investment,
and shall require the ordinary investor to make a signature (including a
digital signature under subparagraph 2 of Article 2 of
the Digital Signature Act;
hereinafter the same shall apply), print his/her name and affix his/her seal, record
conversations,
or have a confirmation in any other manner specified by Presidential
Decree, and keep and maintain the confirmation safely, and
shall furnish the investor
with the confirmed information without delay.
(3) No financial investment business entity shall recommend an ordinary investor to make
an investment, if the investment is deemed
unsuitable for the investor in light of the
investment purpose, status of property, experience in investment, etc. of the investor.
Article 46-2 (Principle of Adequacy)
(1) Each financial investment business entity shall, whenever it intends to sell derivatives
and other financial investment instruments
prescribed by Presidential Decree
(hereinafter referred to as "derivatives") without recommending to make an investment
to an ordinary
investor, obtain information about the investment purpose, status of
property, experience in investment, etc. of the ordinary investor
through interviews,
inquiries, etc.
(2) In cases where a financial investment business entity determines that the relevant
derivatives, etc. are not adequate for an
ordinary investor taking into consideration
the investment purpose, status of property, experience in investment, etc. of the
ordinary
investor, the financial investment business entity shall notify the ordinary
investor of the fact as prescribed by Presidential
Decree and shall obtain a confirmation
from the ordinary investor by providing his/her signature, printing his/her name and
542
Ministry of Government Legislation
affixing his/her seal, recording conversations, or any other manner prescribed by
Presidential Decree.
[This Article Newly Inserted by Act No. 9407, Feb. 3, 2009]
Article 47 (Duty to Explain)
(1) A financial investment business entity shall, whenever it makes an investment
recommendation to an ordinary investor, explain
the details of the financial investment
instrument, the risks contingent upon the investment, and other matters specified by
Presidential
Decree with such sufficiency as to allow the ordinary investor to
understand them.
(2) A financial investment business entity shall obtain a confirmation from each ordinary
investor, stating that he/she has understood
the details as explained pursuant to
paragraph (1), in one or more manners, such as providing a signature, printing his/her
name
and affixing his/her seal, or any other manner prescribed by Presidential Decree.
(3) A financial investment business entity shall
not provide false or distorted information
(referring to an act of providing a conclusive judgment on an uncertain matter, or
information
that is likely to mislead an investor to believe any uncertain matter to
be certain) while explaining material facts that may produce
a significant impact on
the investor's reasonable judgment or the value of the relevant financial investment
instrument (hereinafter
referred to as "material facts") or omit an explanation of any
of the material facts.
(1) A financial investment business entity shall be liable for the damages inflicted upon
ordinary investors by its violation of
Article 47 (1) or (3).
(2) The amount calculated by subtracting the total amount (including the amount prescribed
by Presidential
Decree) of money, etc. recovered or recoverable by an ordinary investor
by disposal of a certain financial investment instrument
or through any other means
from the total amount (excluding the amount prescribed by Presidential Decree) of
money, etc. paid or
payable by the ordinary investor for acquisition of a financial
investment instrument shall be presumed as the damages provided
for in paragraph (1).
Article 49 (Prohibition on Undue Recommendation)
No financial investment business entity shall commit any of the following acts in making
an investment recommendation:
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1. Provide false information;
2. Provide a decisive judgment on an uncertain matter, or information that is likely to
mislead, causing an uncertain matter to be
believed to be certain;
3. Use a method of real-time conversation, such as a personal visit and telephone call
without an investor's request for an investment
recommendation. Provided, that any
of the acts specified by Presidential Decree as those unlikely to undermine the protection
of
investors, or sound trade practice shall be excluded here from;
4. Continuously repeating investment recommendations although the investor to whom
an investment was recommended has already manifested
his/her intention to reject it.
Provided, that any of the acts specified by Presidential Decree as those unlikely to
undermine
the protection of investors or sound trade practice shall be excluded here
from; and
5. Other acts specified by Presidential Decree as likely to undermine the protection of
investors or sound trade practice.
Article 50 (Working Rules on Investment Recommendations)
(1) A financial investment business entity shall establish specific guidelines
and procedures
with which its executives or employees shall comply in making investment
recommendations (hereinafter referred to
as "working rules on investment recommendations").
Provided, that the financial investment business entity shall establish working
rules
for investment recommendations differentiated by level of investors, taking into
consideration the investment purpose, status
of property, experience in investment,
etc.
(2) A financial investment business entity shall announce its established working rules on
investment recommendations to the public
through its Internet homepage, etc. The same
shall also apply to an amendment to the working rules on investment recommendations.
(3) The Association may establish standard working rules on investment recommendations
which can be enforced by financial investment
business entities in common.
Article 51 (Registration of Investment Solicitors)
(1) A financial investment business entity may
entrust a person (limited to a private
individual) who satisfies all the following requirements with investment recommendations
(excluding investment recommendations on derivatives). In such cases, Article 42 shall
not apply: 1. The person shall not be a person registered with the Financial Services Commission
544 Ministry of Government Legislation
in accordance with paragraph (3);
2. The person shall have expertise in financial investment instruments and shall also
have the qualifications prescribed by Presidential
Decree; and
3. Where the registration under Article 53 (2) has been revoked, at least three years
shall have passed since such revocation.
(2) A person to whom investment recommendation is entrusted in accordance with
paragraph (1) shall not commence investment recommendation
before the registration
required under paragraph (3) has been completed.
(3) A financial investment business entity that entrusts investment recommendation to a
person in accordance with paragraph (1)
shall register the entrusted person with the
Financial Services Commission. In such cases, the Financial Services Commission may
entrust the affairs of registration with the Association as prescribed by Presidential
Decree.
(4) A financial investment business entity that intends to register a person to whom
investment recommendation is to be entrusted
in accordance with paragraph (3) shall
file a registration application with the Financial Services Commission (referring to
the
Association if the affairs are entrusted with the Association pursuant to the latter
part of paragraph (3); hereafter the same shall
apply in this Article).
(5) The Financial Services Commission shall, upon receiving a registration application
under paragraph (4), examine the contents
thereof, make a decision on whether to
approve the registration within two weeks, and notify the applicant of the result and
grounds
of its decision in writing without delay. In such cases, a supplementary
correction may be demanded if there is any deficiency in
the registration application.
(6) In calculating the period of examination under paragraph (5), the period specified
by Ordinance of the Prime Minister, such
as the duration for supplementary correction
of deficiency in the registration application, shall not be included in the examination
time period. 1. If any of the requirements under paragraph (1) are not met;
2. If the registration application under paragraph (4) contains false information; or
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3. If the financial investment business entity has not complied with the demand for
supplementary correction under the latter part
of paragraph (5).
(8) The Financial Services Commission shall, upon making a decision on whether to
approve the registration under
paragraph (5), enter the necessary descriptions in the
register of investment solicitors, and shall provide public notice of the
details of its
decision through its official website.
Article 52 (Prohibited Activities, etc. of Investment Solicitor)
(1) No financial investment business entity shall engage any person
other than an investment
solicitor to act as an investment solicitor.
(2) No investment solicitor shall commit any of the following acts:
1. Making a contract on behalf of the entrusting financial investment business entity;
2. Receiving money, securities, or any other property from an investor;
3. Re-entrusting his/her investment-recommending agency business entrusted by a financial
investment business entity to another third
party; and
4. Other acts specified by Presidential Decree as likely to undermine the protection
of investors or sound trade practice.
(3) An investment solicitor shall post a notification showing that he/she is an investment
solicitor or present an identification
of his/her status to investors and shall inform
investors of the following matters in advance of carrying on investment recommendations
vicariously:
1. The name of the financial investment business entity that has entrusted such
investment recommendations to the investment solicitor;
2. The fact that he/she has no authority to make a contract on behalf of the financial
investment business entity that has entrusted
him/her with investment recommendations;
3. The fact that an investment solicitor is prohibited from receiving money, securities,
or any other property from investors, and
that the financial investment business
546 Ministry of Government Legislation
entity shall collect or receive such directly; and
4. Other matters prescribed by Presidential Decree as necessary for the protection of
investors or sound trade practice.
(4) A financial investment business entity shall, in entrusting an investment solicitor with
the affairs of investment recommendation,
observe acts and subordinate statutes,
control the agent in good faith such that he/she shall not undermine sound trade
practice,
and shall establish guidelines for vicarious investment recommendation.
(5) Article 756 of the Civil Act shall apply mutatis mutandis
to the damages inflicted
upon investors by an investment solicitor while carrying on the affairs of investment
recommendation vicariously.
(6) Articles 46 through 49, 54 and 55 hereof and Article 4 of the Act on Real Name
Financial Transactions and Guarantee of Secrecy
shall apply mutatis mutandis where
an investment solicitor runs the affairs of investment recommendation vicariously.
Article 53
(Inspection and Disposition)
(1) An investment solicitor shall receive inspections conducted by the Governor of the
Financial Supervisory Service of his/her
business and status of property in connection
with his/her vicarious investment recommendation. For this purpose, Article 419 (5)
through (7) and (9) shall apply mutatis mutandis.
(2) The Financial Services Commission shall, if an investment solicitor falls
under any
of the following subparagraphs, revoke the registration of the investment solicitor,
or suspend the business of the investment
solicitor for six months or less:
1. If he/she breaches the duty to continue to meet the requirements for registration
under Article 51 (9);
2. If he/she violates Article 52 (2), (3), or (6) (limited to cases to which Article 46,
47, 49, 54, or 55 hereof or Article 4 (1),
or (3) through (5) of the Act on Real
Name Financial Transactions and Guarantee of Secrecy shall apply mutatis
mutandis);
3. If he/she rejects, interferes with, or evades an inspection under the former part
of paragraph (1); and
4. If he/she does not comply with a demand for reporting, etc. under Article 419 (5),
which shall apply mutatis mutandis pursuant
to the latter part of paragraph (1).
(3) The Financial Services Commission shall, whenever it revokes the registration of an
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investment solicitor or suspends the business of the investment solicitor pursuant to
paragraph (2), make an entry of the details,
and shall keep and maintain relevant
records.
(5) A financial investment business entity or investment solicitor (including a person who
acted as an investment solicitor in the
past) may make inquiry to the Financial Services
Commission regarding whether any disposition has been made against him/her pursuant
to paragraph (2), including the details of such disposition.
(6) The Financial Services Commission shall, upon receiving a request for inquiry under
paragraph (5), notify the requesting person
of whether a disposition has been made,
including the details of such disposition, unless there is a justifiable ground otherwise.
(7) Article 423 (excluding subparagraph 2) shall apply mutatis mutandis to the revocation
of the registration of an investment solicitor,
while Article 425 shall apply mutatis
mutandis to the revocation of an investment solicitor and the suspension of the business
of an investment solicitor pursuant to paragraph (2).
Sub-Section 3 Investment Limited Partnership Company
Article 54 (Prohibition
on Use of Job-related Information)
No financial investment business entity shall use information known to it in the course
of its
business and undisclosed to the public, for its own or a third party's interest without
a justifiable ground.
Article 55 (Prohibition on Compensation for Loss)
No financial investment business entity shall commit any of the following acts,
except
where losses are compensated for or returns are guaranteed pursuant to Article 103 (3)
in connection with the trading of
financial investment instruments and other transactions,
or where there is no possibility of undermining sound trade practice and
there is a justifiable
ground. The same shall also apply where any executive or employee of a financial
investment business entity
commits any of the following acts on his/her own account:
548 Ministry of Government Legislation
1. Promising in advance to compensate for all or part of losses that an investor may
sustain;
2. Compensating for all or part of losses sustained by an investor after the fact;
3. Promising an investor in advance to guarantee a certain amount in return; and
4. Offering an investor a certain amount in return after the fact.
Article 56 (Standardized Contract Form)
(1) A financial investment business entity that intends to establish or amend a standardized
contract form in connection with the
financial investment business shall report it in
advance to the Financial Services Commission. Provided, that the standardized contract
form newly established or amended shall be reported to the Financial Services
Commission and the Association within seven days
after such establishment or
amendment in any of the following cases: 1. When any term or condition of the standardized contract form, which does not
involve investors' rights and obligations, is amended;
2. When the standard contract form under paragraph (3) is used as is;
3. When the terms and conditions to be established or amended are identical with
those already reported by other financial investment
business entities to the
Financial Services Commission; and
4. When a standardized contract form applicable only to professional investors is
established or amended.
(2) A financial investment business entity that has established or amended a standardized
contract form shall publish it through
its official website.
(3) The Association may establish a contract form, which will serve as a standard form
in connection with
the operation of a financial investment business (hereafter referred
to as "standard contract form" in this Article), in order to
establish sound trade practice
and prevent the wide use of a contract form with unfair terms or conditions.
(4) The Association
shall, whenever it intends to establish or amend the standard contract
form, report such intention to the Financial Services Commission
in advance. Provided,
that the standard contract form newly established or amended shall be reported to
the Financial Services
Commission within seven days after such establishment or
amendment, if the form is applicable only to professional investors.
(5) The Financial Services Commission shall, upon receiving a report on or being informed
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of the contract form under paragraph (1) or the standard contract form under paragraph
(4), notify the Fair Trade Commission of
the contract form or the standard contract
form. In such cases, if a violation of any provision of Articles 6 through 14 of the
Regulation of Standardized Contracts Act is found in the contract form or the standard
contract form as notified, the Fair Trade
Commission may notify the Financial Services
Commission of the violation, request it to take measures as may be necessary for
rectification
of such violation. The Financial Services Commission shall, in return,
comply with such request, unless there is an extraordinary
reason otherwise.
(6) The Financial Services Commission may, if it is deemed that any contract form or
standard contract form is likely to violate
this Act or any finance-related Act and
subordinate statute or impinge on investors' interests, order the financial investment
business entity involved or the Association to amend the contract form or the standard
contract form in writing, indicating such
foreseeable violation or infringement in
specific detail.
matters prescribed by Presidential Decree, it must also consider the characteristics of
the collective investment securities, in
the advertisement for investment:
1. A statement recommending that the investor read the investment prospectus before
acquiring the collective investment securities;
2. A statement indicating the fact that there is a risk of loss of the invested principal
in the collective investment scheme depending
upon the result of its management
and that such loss shall be imputed to investors; and
3. A statement that the past performance of the collective investment scheme does
not guarantee a return on investment for the future
where the advertisement for
investment contains the past performance of the collective investment scheme.
(4) In advertising for
investment, no financial investment business entity shall include
any indication that may cause a misunderstanding resulting in
a belief that
compensation for losses or guarantee for returns shall be provided, except where any
loss is compensated for or returns
are guaranteed in accordance with Article 103 (3).
(5) If an advertisement for investment contains any indication or advertisement
under
Article 4 (1) of the Act on Fair Indication and Advertisement, such indication or
advertisement shall be governed by the
relevant provisions of the said Act.
(6) Other matters pertaining to the method, procedure, etc. for advertisement for investment
shall be prescribed by Presidential Decree.
Article 58 (Fees)
(1) A financial investment business entity shall determine the matters concerning the
guidelines and procedure for imposition of
fees upon investors, and shall announce
them through its official website.
(2) No financial investment business entity shall discriminate against an investor in
determining the guidelines for imposition
of fees pursuant to paragraph (1) without
a justifiable ground.
(3) A financial investment business entity shall notify the Association of the matters
concerning the guidelines and procedure for
imposition of fees under paragraph (1).
(4) The Association shall compare the matters notified by each financial investment
business
entity in accordance with paragraph (3) and disclose its findings to the public.
Article 59 (Delivery of Contract Documents and
Cancellation of Contract)
(1) A financial investment business entity shall, upon executing a contract with an investor,
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deliver the contract documents without delay. Provided, that the delivery of contract
documents may be omitted if there is no possibility
of undermining the protection
of investors in light of the contents of the contract, as prescribed by Presidential Decree.
(2)
An investor who has entered into a contract (limited to contracts specified by
Presidential Decree, considering the nature of the
contract and other circumstances)
with a financial investment business entity may cancel the contract within seven days
from the
day on which the contract documents under paragraph (1) are delivered.
(3) The cancellation of a contract under paragraph (2) shall
become effective when a
written notice manifesting the intent to cancel is dispatched to the financial investment
business entity.
(4) When a contract is cancelled in accordance with paragraph (3), the financial investment
business entity shall not require an
investor to pay damages or penalty ensuing from
the cancellation of the contract in excess of an amount prescribed by Presidential
Decree as the fee and remuneration adequate for the period of time preceding
cancellation of the contract and other consideration
that the investor is obligated to
pay in connection with the contract.
(5) If there is any consideration received in advance from an investor in connection with
a contract, the financial investment business
entity shall, upon cancellation of a contract
under paragraph (3), return such consideration to the investor. Provided, that the
financial investment business entity is not obligated to return such consideration, if
the consideration does not exceed the amount
prescribed by Presidential Decree.
(6) Special terms and conditions in contravention of the provisions of paragraphs (2)
through
(5) shall be void and null, if they are unfavorable to investors.
Article 60 (Keeping and Maintaining Records)
(1) A financial investment business entity shall keep and maintain records of data related
to the operation of the financial investment
business according to the types of data
specified by Presidential Decree for the period of time prescribed by Presidential
Decree.
(2) A financial investment business entity shall establish and implement measures
appropriate for preventing the data, the records
of which shall be kept and maintained
in accordance with paragraph (1), from being destroyed, fabricated, or altered.
Article 61
(Deposit of Acquired Securities)
Each financial investment business entity (excluding business entities that operate a
552 Ministry of Government Legislation
financial investment business concurrently) shall deposit the securities (including those
specified by Presidential Decree) acquired
in the course of the management of its
proprietary property with the Securities Depository without delay. Provided, that it is not
required to deposit foreign currency securities (referring to the foreign currency securities
under Article 3 (1) 8 of the Foreign
Exchange Transactions Act; hereinafter the same
shall apply) so acquired and as specified by Presidential Decree.
Article 62 (Public
Announcement of Discontinuance of Financial Investment
Business)
(1) A financial investment business entity that intends to discontinue its financial
investment business or the business of a branch
office or any other sales office shall
announce its intention to the public at least 30 days before the intended discontinuance
in two or more daily newspapers circulated nationwide, and shall give an individual
notice thereof to each known creditor.
(2) A financial investment business entity that comes to fall under any of the following
subparagraphs shall close trading of financial
investment instruments and other
transactions run by it. In such cases, a financial investment business entity shall be
deemed
a financial investment business entity until trading and other transactions are
closed:
1. When it obtains approval for discontinuance of the financial investment business
in accordance with Article 417 (1) 6;
2. When it obtains approval for discontinuance of the financial investment business
in accordance with Article 417 (1) 7; and
3. When its authorization or registration for financial investment business is revoked
pursuant to Article 420 (1) or 421 (1) (including
the case where the said paragraph
shall apply mutatis mutandis pursuant to paragraph (4) of the same Article).
Article 63 (Trading
of Financial Investment Instruments by Executives or
Employees)
(1) An executive or an employee of a financial investment business entity (limited to
an executive or an employee who executes the
affairs of the financial investment
business, where such financial investment business entity is, as specified by Presidential
Decree, from among the business entities that operate a financial investment business
concurrently; hereafter the same shall apply
in this Article) shall comply with the
following subparagraphs in trading financial investment instruments, as specified by
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Presidential Decree, on his/her own account:
1. Such trading shall be done in his/her own name;
2. Trading shall be executed through a single account by a single company chosen
from among investment brokers (in the case of an
executive or an employee of
an investment broker, it is limited to the investment broker for which he/she works,
and he/she may
use another investment broker, which shall not deal with the
financial investment instruments that he/she intends to trade). Provided,
that two
or more companies or two or more accounts may be used for such trading where
it is allowed by Presidential Decree, considering
the type of financial investment
instruments, the nature of the accounts, etc.;
3. Details of any such trading shall be notified on a quarterly basis to the financial
investment business entity for which he/she
works (and it shall be done on a monthly
basis in the case of professional advisors for investment recommendation and
professional
researchers and analysts under Article 286 (1) 3 (b), and those for
investment management; hereafter the same shall apply in this
Article); and
4. He/she shall comply with other methods and procedures, as prescribed by Presidential
Decree, for preventing any unfair conduct
or conflicts of interest with investors.
(2) A financial investment business entity shall establish proper guidelines and procedures
with which its executives or employees shall comply in connection with their trading
of financial investment instruments on their
own accounts in order to prevent any
unfair conduct or conflicts of interest with investors.
(3) A financial investment business
entity shall confirm the details of any trading of
financial investment instruments by its executives or employees on a quarterly
basis
in accordance with the guidelines and procedures under paragraph (2).
Article 64 (Liability for Damages)
(1) A financial investment business entity shall be liable for damages if it violates any
Act and subordinate statute, term, or
condition of its standardized contract form,
collective investment agreement, or investment prospectus (referring to the investment
prospectus under Article 123 (1)) and to damages sustained by its investors due to
its negligence in carrying on its business.
Provided, that where a financial investment
business entity that shall be otherwise held liable for damages in violation of Article
37 (2), 44, 45, 71, or 85 (limited to cases where the violation is related to a conflict
of interest arising as a consequence of
engaging in an investment trading business
or an investment brokerage business and a collective investment business concurrently),
554 Ministry of Government Legislation
proves that it exercised reasonable care, or that the investor involved knew the facts
at the time he traded the financial investment
instruments or made any other
transaction, the financial investment business entity shall not be held liable for such
damages.
(2) Where any financial investment business entity shall be liable for damages under
paragraph (1) and an executive involved in
the case is found to be culpable for the
same cause, the financial investment business entity shall be jointly liable for damages
with the executive involved.
Article 65 (Special Cases Concerning Foreign Financial Investment Business
Entities)
(1) In applying this Act to a branch office or any other sales office (hereafter referred
to as "local branch office, etc." in this
Article) of a foreign financial investment
business entity, the operating fund specified by Presidential Decree shall be deemed
the capital, and the aggregate of capital, reserves, and carried-over retained earnings
shall be deemed equity capital, while the
domestic representative shall be deemed
an executive of the business entity.
(3) In the event that a local branch office, etc. of a foreign financial investment business
entity is wound up or becomes bankrupt,
its assets within this country shall be primarily
appropriated to comply with its obligations owed to the persons who have their
domicile or abode in this country.
1. In cases where a person having interest in the local branch office, etc. requests
the Financial Services Commission to appoint
an acting representative when the
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local branch office, etc. does not appoint a new representative or an acting
representative even though there is no representative
in the local branch office,
etc. or a representative has no ability to perform his/her duties;
2. In cases where the Financial Services Commission requests that the local branch
office, etc. appoint or designate a representative
or acting representative within
ten days in accordance with the requirement under subparagraph 1; and
3. In cases where the local branch office, etc. which receives the request under
subparagraph 2 does not appoint or designate a representative
or acting representative
within the period prescribed in subparagraph 2.
(5) In addition to the matters under paragraph (1) through (4), matters pertaining to the
operation of a financial investment business
by a local branch office, etc., including
matters concerning the settlement of accounts and its domestic representative, shall
be prescribed by Presidential Decree.
Article 66 (Explicit Indication of Form of Trading)
An investment trader or investment broker shall disclose its identity in advance,
whether
it is an investment trader or an investment broker, to an investor, whenever it receives
an order for trading a financial
investment instrument from the investor.
Article 67 (Prohibition of Self-contracting)
No investment trader or investment broker shall simultaneously act on his/her/its own
behalf and as the investment broker for another
party in a single transaction involving
a financial investment instrument.
Article 68 (Duty to Trade in Market)
An investment broker shall ensure that a transaction entrusted by an investor for trading
in the securities exchange or the derivatives
market is in fact made through the securities
exchange or the derivatives market. In such cases, Article 67 shall not apply.
Article
69 (Exceptional Acquisition of One's Own Stocks)
An investment trader may, when it receives an order for selling stocks issued by
the
556 Ministry of Government Legislation
investment trader itself in a quantity less than the unit sellable in the securities exchange,
acquire such stocks outside the securities
exchange. In such cases, its own stocks so
acquired shall be disposed of within a time period prescribed by Presidential Decree.
Article 70 (Prohibition on Discretionary Trading)
No investment trader or investment broker shall trade financial investment instruments
with property deposited by an investor in the absence of an order for trading such financial
investment instruments from the investor
or his/her agent.
Article 71 (Prohibition on Unsound Business Conduct)
No investment trader or investment broker shall commit any
of the following acts.
Provided, that such acts may be allowed if there is no possibility of undermining the
protection of investors
or sound trade practice, as prescribed by Presidential Decree:
1. Buying or selling any financial investment instrument on its own account, or
recommending a third-party to buy or sell any financial
investment instrument, before
closing a trade for an order from an investor for buying or selling such instrument
that may produce
a significant impact on the price of the instrument, where it has
received such order or there is a great possibility of receiving
such order;
2. Trading any financial investment instrument included in certain research and analysis
data which contain an assertion or a forecast
of the value of the financial investment
instrument (hereinafter referred to as "research and analysis data") on its own account
during the period of time beginning when the contents of such research and analysis
data are fixed and ending with the lapse of
24 hours after such research and analysis
data are disclosed to the public, where such research and analysis data are disclosed
to the public;
3. Paying any contingent remuneration to a person in charge of the preparation of research
and analysis data in connection with the
corporate financial affairs specified by
Presidential Decree;
4. Disclosing to the public, or providing to a specific person, certain research and analysis
data on certain securities falling
under any of the following items during the time period
from the time when a contract is executed in connection with a public offering
or
sale of the securities to the time specified by Presidential Decree after the securities
are listed for the first time in the
securities exchange:
(a) Stock certificates;
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(b) Stock-related corporate bonds as specified by Presidential Decree; or
(c) Securities depository receipts related to item (a)
or (b);
5. Engaging any person other than an investment solicitor or professional investment
recommendation advisor to make investment recommendations;
6. Acquiring, disposing of, or managing financial investment instruments separately for
each investor with a discretionary power
authorized by investors, in whole or in part,
for making judgments on whether or not investing in financial investment instruments.
Provided, that it may be allowed if it is performed as a discretionary investment business
and it falls under Article 7 (4); and
7. Other acts specified by Presidential Decree as an act unlikely to undermine the
protection of investors or sound trade practice.
Article 72 (Credit Grant)
(1) An investment trader or investment broker may grant credit to investors by means
of lending money or securities. Provided, that
no investment trader shall lend money
or grant credit to an investor with an intention to solicit the investor to buy any
securities
within three months after it underwrites the securities.
(2) Matters pertaining to the guidelines and methods for credit granted
under paragraph
(1) shall be prescribed by Presidential Decree.
Article 73 (Notification of Details of Trading)
An investment trader or investment broker shall, upon closing a trade of financial
investment instruments, notify the investor of
the details in accordance with the method
prescribed by Presidential Decree.
Article 74 (Separate Depositing of Investor's Deposit)
(1) An investment trader or investment broker shall separate an investor's
deposit (referring
to money deposited by investors in connection with trading of financial investment
instruments and other transactions;
hereinafter the same shall apply) from its
proprietary property and shall place it in a deposit or trust account with a financial
securities company.
(2) Notwithstanding paragraph (1), any investment trader or investment broker specified
by Presidential Decree, from among the business
entities that operate a financial
investment business concurrently, may deposit the investor's deposit in a trust business
558
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entity (excluding financial securities companies; hereafter the same shall apply in this
Article) instead of placing it in a deposit
or trust account under paragraph (1). In
such cases, the investment trader or investment broker may execute a self-contract,
notwithstanding
Article 2 of the Trust Business Act, if it operates a trust business.
(3) An investment trader or investment broker shall, when
it places an investor's deposit
in a deposit or trust account with a financial securities company or a trust business
entity (hereafter
referred to as "deposited institution" in this Article) in accordance
with paragraph (1) or (2), make it clear that the investor's
deposit is the investor's
property.
(4) No one may set off or seize (including provisional seizure) an investor's deposit placed
in a deposit or trust account with
a deposit institution in accordance with paragraph
(1) or (2), and the investment trader or investment broker who placed the investor's
deposit in a deposit or trust account (hereafter referred to as "depositing financial
investment business entity" in this Article)
may not transfer the investor's deposit
placed in a deposit or trust account with a deposit institution or offer it as security,
except as prescribed by Presidential Decree.
(5) A depositing financial investment business entity shall, when it comes to fall under
any of the following subparagraphs, withdraw
the investor's deposit placed in a deposit
or trust account with a deposit institution to be paid to the investor first. In such
cases, the depositing financial investment business entity shall provide public notice
of such fact, and the matters concerning
the time and place of payment of the investor's
deposit, and other matters related to the payment of the investor's deposit through
two or more daily newspapers, and shall also disclose such matters to the public
through its official website:
1. When authorization for its business is revoked;
2. When a resolution for dissolution is adopted;
3. When bankruptcy is declared against it;
4. When the whole transfer of the financial investment business under Article 6 (1)
1 or 2 is approved;
5. When the whole discontinuance of the financial investment business under Article
6 (1) 1 or 2 is approved;
6. When an order to suspend the financial investment business, in whole, under Article
6 (1) 1 or 2 is issued; and
7. When any cause or event similar to the events under subparagraphs 1 through 6
occurs.
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(6) A deposit institution shall, when it comes to fall under any of the subparagraph in
paragraph (5), return to the depositing
financial investment business entity the
investor's deposit placed in a deposit or trust account in the first place.
(7) A deposit
institution shall manage the investor's deposit in any of the following
manners:
1. Purchasing national bonds or local government bonds;
2. Purchasing obligation certificates with a guarantee of payment by the State, a local
government, or any financial institution
specified by Presidential Decree; and
3. A method prescribed by Presidential Decree as one unlikely to undermine the stable
management of the investor's deposit.
(8) The scope of an investor's deposit which an investment trader or investment broker
is obligated to place in a deposit or trust
account with a deposit institution in
accordance with paragraph (1) or (2), the proportion of the deposit or trust, the
withdrawal
of the investor's deposit placed in a deposit or trust account, the
management of the investor's deposit by a deposit institution,
and other matters
pertaining to the deposit or trust of investors' deposits shall be prescribed by
Presidential Decree. In such
cases, the proportion of deposit or trust applicable to
each authorized investment trader or investment broker may differ depending
upon
the financial status of each investment trader or investment broker.
Article 75 (Depositing of Securities Deposited by Investors)
An investment trader or investment broker shall, upon receiving securities (including those
specified by Presidential Decree) owned
and deposited by investors in connection with
trading of financial investment instruments and other transactions, deposit them in
the
Securities Depository without delay. Provided, that it is not required to deposit securities
owned and deposited by an investor
in the Securities Depository, if they are foreign
currency securities specified by Presidential Decree.
Article 76 (Special Cases
concerning Sale of Collective Investment Securities)
(1) An investment trader or investment broker shall, when it sells collective
investment
securities, sell them at the base price (referring to the base price under Article 238
(6); hereinafter the same shall
apply) calculated first after it pays money, etc. for
acquiring the collective investment securities. Provided, that they shall
be sold at a
base price prescribed by Presidential Decree, where there is no possibility of
undermining investors' interests, as
prescribed by Presidential Decree.
560 Ministry of Government Legislation
(2) No investment trader or investment broker shall sell collective investment securities
at issue upon receiving notice under Article
92 (1) (including the cases as applicable
mutatis mutandis in Article 186 (2)). Provided, that the sale may be resumed upon
receiving
notice under Article 92 (2) (including cases to which the same Article shall
apply mutatis mutandis pursuant to Article 186 (2)).
(3) No investment trader or investment broker shall sell collective investment securities
or commence advertising for such sale
before the collective investment scheme is
registered in accordance with Article 182. Provided, that advertising for the sale may
be commenced where there is no possibility of undermining investors' interests, as
prescribed by Presidential Decree.
(4) Where an investment trader or investment broker receives a sales commission (referring
to money received directly from investors
as consideration for the conduct of selling
collective investment securities; hereinafter the same shall apply) or sales remuneration
(referring to money received from a collective investment scheme as consideration
for service provided continuously to investors
by an investment trader or investment
broker who has sold collective investment securities; hereinafter the same shall apply),
it shall not receive such sales commission or sales remuneration contingent upon the
performance of management of the collective
investment scheme.
(5) Sales commission and sales remuneration under paragraph (4) shall not exceed the
ceiling under the following subparagraphs.
Provided, that a privately placed fund is
not subject to the application of the ceiling under the following subparagraphs:
1. Sales commission: Ceiling prescribed by Presidential decree which should not be
more than 3/100 of the amount of payment or amount
of redemption;
2. Sales remuneration: Ceiling prescribed by Presidential decree which should not be
more than 15/1,000 of the annual average value
of the collective investment
property.
(6) The detailed method of setting a ceiling on sales commission and sales remuneration
under paragraph (5), imposing method and
other necessary matters concerning sales
commission and sales remuneration shall be prescribed by Presidential Decree.
Article 77 (Special Cases concerning Deposits and Insurance with Investment Risk)
(1) A bank shall be deemed to have obtained authorization
for a financial investment
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business under Article 12 in regard to an investment trading business, when it signs
a contract for a deposit in the nature of an
investment. In this regard, Articles 15,
39 through 45, subparagraph 3 of Article 49, Articles 56, 58, 61 through 65, Part
II,
Chapters II and III, and Chapter IV, Section 2, Sub-Section 1 shall not apply,
while Part III, Chapter I shall not apply in cases
where a bank signs a contract for
a foreign currency deposit in the nature of an investment.
(2) An insurance company (including
an entity under Article 2 (8) through (10) of the
Insurance Business Act Insurance Business Act) shall be deemed to have obtained
authorization for a financial investment business under Article 12 in regard to an
investment trading business or an investment
brokerage investment, when it signs an
insurance contract with investment risk or acts as a broker or an agent for such contract.
In such cases, Articles 15, 39 through 45, subparagraph 3 of Article 49, Articles 51
through 53, 56, 58, 61 through 65, and Part
II, Chapters II and III, Chapter IV, Section
2, Subsection 1, and Part III, Chapter I shall not apply.
Article 78 (Brokerage of
Securities by Electronic Means)
(1) An electronic investment brokerage business entity (hereinafter referred to as
"electronic
securities brokerage company") that acts as a broker for trading listed stocks
(including securities depository receipts that are
related to stock certificates and that
are listed on the securities exchange; hereafter the same shall apply in this Article)
at
trading prices set forth in any item of subparagraph 1 for a multiple number of
parties simultaneously through an information telecommunications
network or an
electronic information processing system (hereinafter referred to as "electronic
securities brokerage") shall comply
with the guidelines prescribed by Presidential
Decree (hereafter referred to as "business guidelines" in this Article) concerning
the
matters set forth in items of subparagraph 2, in carrying on such business: 1. Trading prices falling under any of the following items:
(a) The latest price of the pertinent listed stocks publicly announced
at the securities
exchange; and
(b) A uniform price determined by a formula prescribed by Ordinance of the Prime
Minister; and
2. The subject matters that may be prescribed by the business guidelines shall be
as follows:
(a) Matters concerning listed stocks as the subject matter of a trading brokerage;
562 Ministry of Government Legislation
(b) Matters concerning suspension of trading of listed stocks as the subject matter
of a trading brokerage and the release of such
suspension;
(c) Matters concerning the execution of trading contracts and the settlement of
payments, including the method and
liability for settlement;
(d) Matters concerning trading entrustment, including entrustment guarantee money;
(e) Matters concerning
reporting and public disclosure by issuers of listed stocks
as the subject matter of a trading brokerage;
(f) Matters concerning public announcements and reporting on trading results;
(g) Matters concerning the opening, closing, suspension,
and discontinuance of a
trading brokerage business; and
(h) Other matters as may be necessary in relation to a trading brokerage of listed
stocks as the subject matter of the trading brokerage.
(2) Part II, Chapter II (excluding Articles 28 and 29), Articles 40, 66, 67, 72, 73 and
386 (2) shall not apply to electronic securities
brokerage companies.
(3) Article 413 shall apply mutatis mutandis to electronic securities brokerage companies.
Sub-Section 2 Undisclosed Investment Associations
Article 79 (Fiduciary Duty of Due Care and Duty of Good Faith)
(1) A collective
investment business entity owes investors the fiduciary duty of due care
in managing collective investment property.
(2) A collective investment business entity shall carry out the business in good faith for
the purpose of protecting the investors'
interests.
Article 80 (Instruction and Execution of Asset Management)
(1) A collective investment business entity of an investment
trust shall, in managing the
investment trust property, give the trust business entity instructions necessary for
acquisition,
disposition, etc. of assets for investment separately for each investment
trust property in accordance with the method prescribed
by Presidential Decree, and
the trust business entity shall, in return, acquire, dispose of, etc. the assets for
investment in
compliance with the instructions from the collective investment business
entity. Provided, that if it is unavoidable for the purpose
of managing the investment
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trust property efficiently, as prescribed by Presidential Decree, the collective
investment business entity may acquire, dispose
of, etc. any asset for investment
directly in its name.
(2) A collective investment business entity of an investment trust (including a trust
business entity that keeps in custody and
manages the investment trust property;
hereinafter the same shall apply in this paragraph) shall be liable for the performance
within the extent of the investment trust property, when it acquires, disposes of, etc.
an asset for investment in accordance with
paragraph (1). Provided, that the same
shall not apply in cases where the collective investment business entity is liable for
damages
pursuant to Article 64 (1).
(3) A collective investment business entity shall, when it carries out the acquisition,
disposal, etc. of assets for investment
in accordance with the proviso to paragraph
(1), distribute the outcome of the acquisition, disposal, etc. in accordance with the
asset distribution schedule predetermined for each investment trust property. In such
cases, the collective investment business
entity shall prepare, maintain, and control
the asset distribution schedule and books of account and documents for the outcome
of acquisition, disposal, etc. and the results of distribution in accordance with the
method prescribed by Ordinance of the Prime
Minister.
(4) Matters pertaining to the asset distribution schedule under paragraph (3) shall be
prescribed by Ordinance of the Prime Minister.
(5) In managing the collective investment property, a collective investment business entity
of any collective investment scheme,
other than an investment trust, shall acquire,
dispose of, etc. of the assets for investment by each collective investment property
(excluding investment trust property) in accordance with a method prescribed by
Presidential Decree in the name of the collective
investment scheme (referring to the
name of the collective investment business entity in the case of an undisclosed
investment
association), give the trust business entity of the collective investment
scheme instructions necessary for safekeeping and management
of the asset acquired,
disposed of, etc., and the trust business entity shall comply with such instructions
from the collective
investment business entity. In such cases, the collective investment
business entity shall make it clear that it represents the
collective investment scheme
whenever it acquires, disposes of, etc. the assets for investment.
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Article 81 (Restrictions on Asset Management)
(1) No collective investment business entity shall commit any of the following acts while
managing the collective trust property.
Provided, that the entity may be allowed to
undertake such act if there is no possibility of undermining the protection of investors
and the stable management of the collective investment property, as prescribed by
Presidential Decree:
1. Any act falling under any of the following items, committed while investing the
collective investment property in securities (excluding
collective investment
securities and the other securities but including the assets for investment as both
specified by Presidential
Decree; hereinafter the same shall apply in this
subparagraph) or derivatives:
(a) Investing the assets of each collective investment scheme managed by each
collective investment business entity in an identical
item of securities in excess
of the ratio prescribed by Presidential Decree within the limit of 10/100 of
the total assets of each
collective investment scheme. In such cases, equity
securities (including securities depositary receipts that are related to equity
securities issued by a corporation, etc.; hereinafter the same shall apply in this
Subsection) and other securities, excluding
any equity securities issued by the
identical corporation, etc., shall be deemed identical securities respectively;
(b) Investing
the total assets of all collective investment schemes managed by each
collective investment business entity in equity securities
issued by an identical
corporation, etc. in excess of 20/100 of the total number of equity securities;
(c) Investing the total
assets of each collective investment scheme in equity
securities issued by an identical corporation, etc. in excess of 10/100 of
the
total number of equity securities;
(d) Trading over-the-counter derivatives with a person who does not meet the
qualification requirements prescribed by Presidential
Decree;
(e) Investing assets in excess of the guidelines prescribed by Presidential Decree
for the assessed risks contingent to
trading derivatives;
(f) Investing the assets of each collective investment scheme to the extent that
the assessed risks ensuing
from price fluctuation in the securities issued by
an identical corporation, etc. (including securities depositary receipts related
to the securities issued by the corporation, etc.) out of the underlying assets
exceed 10/100 of the total assets of each collective
investment scheme; and
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(g) Investing assets of each collective investment scheme to the extent that the
assessed risks of the opposite trading party ensuing
from trading over-the-counter
derivatives with the same opposite party exceed 10/100 of the total assets of
each collective investment
scheme;
2. Any act falling under any of the following items, committed while investing the
collective investment property in real property:
(a) Disposing of real estate within a period of time prescribed by Presidential
Decree not exceeding five (5) years after the acquisition
of real estate. Provided,
that in cases where a parcel of land, buildings, etc. developed or constructed
by a real estate development
project (referring to a project for developing a
parcel of land into housing lots, lots for industrial purposes, etc. or constructing
or reconstructing a building or any other structure on the tract of land;
hereinafter the same shall apply) are sold in lots or
in units or where it is
otherwise necessary for the protection of investors, as prescribed by Presidential
Decree, such disposal
shall be excluded; and
(b) Disposing of a parcel of land without any building or other structure thereon
before executing a real estate development project
for such a parcel of land.
Provided, that in cases where the collective investment scheme is merged,
terminated, or dissolved or
where it is otherwise necessary for the protection
of investors, as prescribed by Presidential Decree, such disposal shall be
excluded;
3. Any act falling under any of the following items, committed while investing the
collective investment property in collective investment
securities (including foreign
collective investment securities under Article 279 (1); hereinafter the same shall
apply in this
subparagraph):
(a) Investing the assets of each collective investment scheme in the collective
investment securities of a collective investment
scheme (including foreign
collective investment schemes under Article 279 (1)) managed by the same
collective investment business
entity (including foreign collective investment
business entities under Article 279 (1)), in excess of 50/100 of the total assets
of the collective investment scheme;
(b) Investing the assets of each collective investment scheme in the collective
investment securities of the same collective investment
scheme (including
foreign collective investment schemes under Article 279 (1)), in excess of
20/100 of the total assets of the
collective investment scheme;
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(c) Investing assets in the collective investment securities of a collective investment
scheme (including foreign collective investment
schemes under Article 279 (1)),
which is allowed to invest in collective investment securities in excess of 40/100
of the total
assets;
(d) Investing assets in the collective investment securities of a privately placed fund
(including foreign privately placed funds
corresponding to the privately placed
fund hereunder);
(e) Investing the collective investment property of each collective investment
scheme in the collective investment securities of
the same collective investment
scheme (including foreign collective investment schemes under Article 279 (1)),
in excess of 20/100
of the total number of the collective investment securities.
In such cases, the calculation of the ratio shall be based on the day
the
investment is made; and
(f) Investing assets in collective investment securities to the extent that the
aggregate of sales commissions or sales remuneration
paid to the investment
trader or the investment broker, who sells the collective investment securities
of a collective investment
scheme, and sales commission or sales remuneration
paid to the investment trader [including foreign investment traders (referring
to the persons who engage in a business corresponding to an investment trading
business in a foreign country in accordance with
the acts and subordinate statutes
of the foreign country)], who sells the collective investment securities of other
collective
investment schemes (including foreign collective investment schemes
under Article 279 (1)) in which the aforesaid collective investment
scheme
invests in, or the investment broker [including foreign investment brokers
(referring to the persons who engage in a business
corresponding to an investment
brokerage business in a foreign country in accordance with the acts and subordinate
statutes of
the foreign country)], exceeds the guidelines prescribed by Presidential
Decree; and
4. Any other act specified by Presidential Decree that would likely undermine the
protection of investors, the stable management
of collective investment property, etc.
(2) Matters pertaining to the method, etc. of determining the assessed risks under paragraph
(1) 1 (e), the assessed risks under paragraph (1) 1 (f), and the assessed risks of the
opposite trading party under paragraph (1)
1 (g) shall be determined by the Financial
Services Commission and provided by public notice.
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(3) In cases where an investment has exceeded the investment limit under paragraph (1)
owing to an unavoidable cause or event specified
by Presidential Decree, such as
price fluctuation in any investment asset, which belongs to the collective investment
property,
during the period prescribed by Presidential Decree beginning with the day
on which the investment exceeded the prescribed limit,
it shall be deemed that such
investment was made in compliance with the investment limit.
(4) Paragraph (1) 1 (a), (e) through
(g), 3 (a), 3 (b) and investment ratios under each
subparagraph in Article 229 shall not apply to the period of time specified by
Presidential Decree, not exceeding six months from the date of the original creation
or establishment of the collective investment
scheme.
Article 82 (Restriction on Acquisition of One's Own Collective Investment
Securities)
No collective investment business entity of an investment trust or an undisclosed
investment association shall acquire the collective
investment securities of the collective
investment scheme, or receive such securities as the subject matter of a pledge right on
the collective investment scheme's account. Provided, that the entity may acquire the
collective investment securities of the collective
investment scheme on the collective
investment scheme's account in any of the following cases:
1. Where it is necessary for exercising a security right or any other right. In such cases,
the collective investment securities
so acquired shall be disposed of in accordance with
the method prescribed by Presidential Decree; and
2. Where beneficiary certificates are purchased in accordance with Article 191.
Article 83 (Restrictions on Borrowing Money)
(1) No collective investment business entity may borrow money on its collective
investment scheme's account in managing the collective
investment property. Provided,
that it is allowed to borrow money on its collective investment scheme's account in
any of the following
cases:
1. When it is difficult to pay a redemption price momentarily because of rush claims
for redemption of collective investment securities
under Article 235; or
2. When it is difficult to pay a repurchase price momentarily because of rush claims
for repurchasing under Articles 191 and 201
(4).
(2) In cases where money is borrowed on a collective investment scheme's account in
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accordance with paragraph (1), the total amount of such loans shall not exceed 10/100
of the total amount of the collective investment
property at the time of borrowing.
(3) Matters pertaining to the method of borrowing money in accordance with paragraph
(1), restrictions
on acquisition of the investment assets before repayment of loans,
etc. shall be prescribed by Presidential Decree.
(4) In managing the collective investment property, no collective investment business
entity shall lend money out of the collective
investment property (excluding short-term
loans to any financial institution specified by Presidential Decree for a period not
exceeding thirty (30) days).
(5) In managing the collective investment property, no collective investment business
entity shall guarantee the performance of
obligations or offer any security for any
person other than the pertinent collective investment scheme with the collective
investment
property.
Article 84 (Restrictions on Transactions with Interested Parties)
(1) In managing the collective investment property, no collective
investment business
entity shall conduct any transactional activity with an interested party, as specified
by Presidential Decree
(hereafter referred to as "interested party" in this Section).
Provided, that the entity is allowed to make a transaction falling
under any of the
following subparagraphs, if there is no possibility of a conflict of interest with the
collective investment scheme:
1. A transaction under a contract entered into with a person at least six months before
the person becomes an interested party;
2. A transaction through an open market in which a multiple number of unspecified
people participate, such as the securities exchange;
3. A transaction favorable to the collective investment scheme in comparison to the
standard terms and conditions of such a transaction;
and
4. Other transactions specified by Presidential Decree.
(2) A collective investment business entity shall, when a transaction with
an interested party
is allowed pursuant to the proviso to paragraph (1) or when there is a change of
interested parties, notify
the details of such event to the trust business entity that keeps
in custody and manages the relevant collective investment property
without delay.
(3) In managing the collective investment property, no collective investment business
entity shall acquire securities
(excluding beneficiary certificates under Article 189)
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issued by the collective investment business entity itself on its collective investment
scheme's account.
(4) In managing the collective investment property, no collective investment business
entity shall acquire securities (excluding
beneficiary certificates under Article 189 and
other securities specified by Presidential Decree, but including securities depositary
receipts related to equity securities issued by its affiliated company and assets for
investment specified by Presidential Decree;
hereafter the same shall apply in this
Article) issued by an affiliated company of the collective investment business entity
in
excess of the limit prescribed by Presidential Decree.
(5) Matters pertaining to the restriction on acquisition of securities issued
by an affiliated
company under paragraph (4) shall be prescribed by Presidential Decree.
Article 85 (Prohibition on Unsound Business
Conduct)
No collective investment business entity shall commit any of the following acts. Provided,
that such an act is allowed
in cases where there is no possibility of undermining the
protection of investors or sound trade practice, as prescribed by Presidential
Decree:
1. Buying or selling financial investment instruments or any other asset for investment
on its own account, or soliciting a third-party
to buy or sell such instruments or assets,
after determining to make a purchase or sale which may produce a significant impact
on the price of the financial investment instruments or other assets for investment,
but before putting the decision into action,
while managing the collective investment
property;
2. Buying securities underwritten by it or a related underwriter, as specified by Presidential
Decree (hereafter referred to as "related
underwriter" in this Section) for the collective
investment property;
3. Buying specific securities, etc. (referring to specific securities, etc. under Article 172
(1); hereafter the same shall apply
in this subparagraph) with the collective investment
property while intending to create an artificial market value (referring to
the market
value under Article 176 (2) 1) for the specific securities, etc. of a corporation for which
the corporation itself or
its related underwriter was in charge of underwriting, as
prescribed by Presidential Decree;
4. Undermining a specific collective investment scheme's interest to pursue its own or
a third party's interest;
5. Trading a specific collective investment property for the collective investment business
entity's proprietary property or other
collective investment property, discretionary
570 Ministry of Government Legislation
investment property (referring to the property managed pursuant to the discretionary
power authorized by investors for making judgments
on investments; hereinafter the
same shall apply), or trust property managed by the collective investment business entity;
6. Investing the collective investment property one with another interactively within a
specific asset according to an agreement,
arrangement, etc. with a third party;
7. Engaging any persons other than fund managers to manage the collective investment
property; and
8. Other acts specified by Presidential Decree that would likely undermine the protection
of investors or sound trade practice.
Article 86 (Restriction on Contingent Remuneration)
(1) No collective investment business entity shall receive remuneration that
is contingent
upon the performance of its collective investment scheme (hereinafter referred to as
"contingent remuneration") in
accordance with a predetermined calculation formula.
Provided, that such contingent remuneration may be allowed in any of the following
cases:
1. If the collective investment scheme is a privately placed fund; and
2. If there is no possibility of undermining the protection of investors or sound trade
practice, as prescribed by Presidential Decree,
considering the calculation method
used for remuneration of management for any collective investment scheme other
than privately
placed funds, the composition of investors, etc.
(2) A collective investment business entity shall, when it intends to receive contingent
remuneration in accordance with the proviso to paragraph (1), state the calculation
method of the contingent remuneration and other
matters prescribed by Presidential
Decree in the relevant investment prospectus (referring to the investment prospectus
under Article
123 (1)) and the collective investment agreement.
Article 87 (Voting rights)
(1) In exercising voting rights for stocks which are part of the collective investment
property, a collective investment business
entity (limited to collective investment
business entities of an investment trust or an undisclosed investment association;
hereafter
the same shall apply in this Article) shall exercise its voting rights so as
not to produce an impact on a resolution made by the
number of stocks, as calculated
by subtracting the number of the stocks, which are part of the collective investment
property from
the stocks held by shareholders present at the general meeting of
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shareholders of the corporation that issued the stocks which are part of the collective
investment property, in any of the following
subparagraphs. Provided, that the same
shall not apply in cases where the corporation that issued the stocks which are part
of
the collective investment property, is merged, its business is transferred, it acquires
any transferred business, an executive is
appointed or dismissed, its Articles of
incorporation are amended, or there is any cause or event similar to the aforesaid,
and
if it is obviously foreseeable that such event or cause will result in any loss
to the collective investment property:
1. When any of the following persons attempts to include the corporation that issued
the stocks which are part of the collective
investment property, in a group of its
affiliated companies:
(a) The collective investment business entity or any person who has an interest
in the business entity as specified by Presidential
Decree; and
(b) A person specified by Presidential Decree, who has de facto control over the
collective investment business entity;
2. When the corporation that issued the stocks which are part of the collective
investment property has any of the following relationships
in the collective
investment business entity:
(a) When it is an affiliated company; and
(b) When it has a relationships, prescribed by Presidential Decree, under which
it exercises de facto control over the collective
investment business; and
3. When there is a possibility of undermining the protection of investors or the
appropriate management of the collective investment
property, as prescribed by
Presidential Decree.
(2) The proviso to paragraph (1) shall not apply to any collective investment business
entity that belongs to an enterprise group
subject to a restriction on mutual investment
under Article 9 (1) of the Monopoly Regulation and Fair Trade Act (hereinafter referred
to as "enterprise group subject to a restriction on mutual investment"). Provided, that
in cases where a collective investment
business entity that belongs to an enterprise
group subject to a restriction on mutual investment holds stocks issued by a stock-listed
corporation, which is one of its affiliated companies, and it is obviously foreseeable
that the collective investment property
will sustain a loss if it exercises its voting
rights concerning any of the following matters in accordance with the main sentence
of paragraph (1), it may exercise its voting rights in accordance with the proviso
to paragraph (1). In such cases, the number
of stocks for which it may exercise its
572 Ministry of Government Legislation
voting rights after adding up the number of stocks for which related persons (referring
to the specially related persons under Article
7 (1) 5 (a) of the Monopoly Regulation
and Fair Trade Act) of the corporation may exercise voting rights shall not exceed
15/100
of the total number of outstanding stocks of the corporation:
1. Merging the corporation with another corporation or transferring the whole or
essential part of the corporation's business to
another corporation;
2. Appointing or dismissing an executive of the corporation; and
3. Amending the Articles of incorporation.
(3) Notwithstanding paragraph (2), any collective investment business entity that belongs
to an enterprise group subject to a restriction on mutual investment shall, when it
owns stocks issued by a corporation which is
one of its affiliated companies, as part
of the collective investment property, exercise its voting rights for the stocks acquired
in accordance with the proviso to Article 81 (1) in excess of the investment limit
under Article 81 (1) 1 (a) so as not to produce
any impact on the resolution made
by the number of stocks calculated by subtracting the number of stocks held as part
of the collective
investment property from the number of stocks held by the
shareholders who were present at the general meeting of shareholders of
the corporation
that issued the stocks.
(4) No collective investment business entity may exercise voting rights for the stocks
acquired in excess of the investment limit
under Articles 81 (1) and 84 (4).
(5) No collective investment business entity shall commit any act to avoid the application
of
the provisions of paragraphs (1) through (4) by exercising the voting right one
with another interactively according to an agreement
with a third party.
(6) The Financial Services Commission may, when a collective investment business entity
exercises voting rights
for stocks that belong to the collective investment property
in violation of paragraphs (1) through (5), issue an order to dispose
of such stocks
within a given period of time, not exceeding six months.
(7) A collective investment business entity shall keep and maintain records of whether
the voting rights of the corporation that
issued the stocks held in excess of the ratio
or amount prescribed by Presidential Decree (hereafter referred to as "corporation
subject to public disclosure of voting rights" in this Article) as part of the collective
investment property have been exercised,
including the details of such exercise (or
the reason why it has not been exercised, if that is the case) in accordance with the
manner prescribed by Presidential Decree.
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(8) A collective investment business entity shall make a public disclosure of the details
of the exercised voting rights for the
stocks prescribed by Presidential Decree (in
cases of stock-listed corporations under Article 9 (15) 3 (b), including securities
depository receipts related to the stocks), from among stocks that belong to the
collective investment property, etc., according
to each of the following categories.
Matters pertaining to the method of public disclosure, etc. shall be prescribed by
Presidential
Decree: 1. When the voting rights were exercised in accordance with the provisions of
paragraphs (1) through (3) in relation to the matters
concerning the change of
business control, such as corporate merger, transfer of business, appointment or
dismissal of an executive,
and amendment to the Articles of incorporation; specific
details of how the voting rights were exercised shall be disclosed;
2. When the voting rights were exercised over a corporation subject to public
disclosure of voting rights; specific details of how
the voting rights were exercised
in accordance with paragraph (7) shall be disclosed; and
3. When the voting rights were not exercised over a corporation subject to public
disclosure of voting rights; specific reason why
the voting rights were not exercised
in accordance with paragraph (7) shall be disclosed.
(9) A collective investment business
entity shall, when it discloses to the public the matters
concerning whether voting rights were exercised in accordance with paragraph
(8),
also disclose the data specified by Presidential Decree as those necessary for investors
to grasp whether the exercise or
non-exercise of voting rights was proper, etc.
Article 88 (Delivery of Report on Asset Management)
(1) A collective investment
business entity shall prepare a report on asset management
at least once every three months and shall deliver the report to investors
of the relevant
collective investment scheme after obtaining confirmation from the trust business entity
that keeps in custody
and manages the relevant collective investment property.
Provided, that delivering such a report on asset management to investors
may be
omitted in cases where investors are changed from time to time or there is no possibility
of undermining investors' interests,
as prescribed by Presidential Decree.
(2) A collective investment business entity shall state the following matters in the report
on asset management under paragraph
(1):
1. Assets and liabilities of the collective investment scheme and the base price of
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the collective investment securities as of any of the following days (hereinafter
referred to as "reference date"):
(a) The date on which three months has elapsed from the commencement date
of the fiscal term;
(b) The last day of the fiscal term;
(c) The last day of the contract term or the expiry date of the existence term; and
(d) The date of termination or dissolution;
2. A summary of management progress during the time period from the immediately
preceding reference date (referring to the date of
original creation or formation
of the relevant collective investment scheme, if there is no immediately preceding
reference date
available) to the pertinent reference date (hereafter referred to as
"pertinent management period" in this Article) and the matters
concerning profit
and loss during the pertinent management period;
3. The ratio of the assessed value of each type of asset that belongs to the collective
investment property to the total value of
the collective investment property as of
the reference date;
4. The total number of stocks traded, total trading amount, and turnover rate prescribed
by Presidential Decree during the pertinent
management period; and
5. Other matters prescribed by Presidential Decree.
(3) Matters pertaining to the time and method of delivering the report on asset
management
under paragraph (1), liability for expenses, etc. shall be prescribed by Presidential
Decree.
Article 89 (Ad Hoc Public Disclosure)
(1) A collective investment business entity of an investment trust or an undisclosed
investment association shall, when any of the
following events or causes occurs,
disclose such event or cause to the public: 1. Any change in fund managers;
2. Decisions on deferment or resumption of redemption and the reason therefor;
3. Details of non-performing assets, if any, specified by Presidential Decree, and the
depreciation rate thereof;
4. Details of resolutions of the general meeting of collective investors; and
5. Other matters prescribed by Presidential Decree as those necessary for the protection
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of investors.
(2) Ad hoc public disclosure shall be made in a manner falling under each of the following
subparagraphs: 1. Disclosing to the public through the Internet homepage of a collective investment
business entity, an investment trader or broker
that sold the relevant collective
investment securities, and the Association;
2. Informing investors through electronic mail by investment trader or investment
broker that sold the relevant collective investment
securities; and
3. Posting a public notice at the head office, branch offices, and other sales offices
of a collective investment business entity,
an investment trader or investment broker
that sold the relevant collective investment securities.
Article 90 (Reporting on Collective
Investment Property)
(1) A collective investment business entity (limited to the collective investment business
entities of an
investment trust or an undisclosed investment association; hereafter the
same shall apply in this Article) shall prepare a business
report for each quarter
concerning the collective investment property in accordance with the manner prescribed
by Presidential
Decree, and shall submit it to the Financial Services Commission and
the Association not later than two months after the end of
each quarter. 1. The end of the fiscal term of a collective investment scheme;
2. The end of the contract term or existence term of a collective investment scheme;
and
3. Termination or dissolution of a collective investment scheme.
(3) The Financial Services Commission and the Association shall
disclose the documents
submitted in accordance with paragraphs (1) and (2) to the public through its official
website.
disclose the result thereof to the public through its official website.
Article 91 (Inspection, Public Disclosure, etc. of Books
of account and Documents)
(1) An investor may request a collective investment business entity (limited to the
collective investment
business entities of an investment trust or an undisclosed
investment association, but including the investment trader and the investment
broker
who sold the relevant collective investment securities; hereafter the same shall apply
in this Article), in writing with
the reasons contained therein, to allow him/her to
inspect books of account and documents related to the collective investment property
in which he/she has an interest during business hours or issue a certified copy or
abstract of such books of account and documents.
In such cases, the collective
investment business entity shall not reject such request, unless there is a justifiable
ground as
prescribed by Presidential Decree.
(2) Matters pertaining to the extent of the books of account and documents subject to
the request for inspection or issuance of
a certified copy or abstract thereof under
paragraph (1) shall be prescribed by Presidential Decree.
(3) An investment business
entity shall publicly disclose its collective investment
agreement through its official website.
Article 92 (Notice of Deferment of Redemption.)
(1) A collective investment business entity (limited to collective investment business
entities of an investment trust or an undisclosed
investment association; hereafter the
same shall apply in this Article) shall, when any of the following events occur, notify
the
investment trader or the investment broker who sold the relevant collective
investment securities thereof without delay:
1. When the redemption of the collective investment securities is deferred in accordance
with Article 237 (1); and
2. When the accounting auditor's audit opinion on the collective investment scheme
under Article 240 (3) is not an unqualified one.
(2) A collective investment business entity shall, when the event under paragraph (1)
terminates, notify the investment trader or
the investment broker who sold the relevant
collective investment securities thereof without delay.
Article 93 (Special Cases Concerning
Management of Derivatives)
(1) When the collective investment property of a collective investment scheme, which
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is allowed to invest its property in derivatives to the extent that the assessed risks
contingent to the trading of derivatives
(referring to the assessed risks under Article
81 (1) 1 (e); hereafter the same shall apply in this Article) exceed the guidelines
prescribed by Presidential Decree, is invested in derivatives, the collective investment
business entity shall publicly disclose
the contract amount and other indexes related
to risks, as prescribed by Presidential Decree, through its official website. In such
cases, the investment prospectus (referring to the investment prospectus under Article
123 (1)) of the collective investment scheme
shall contain a statement that the summary
of indexes related to contingent risks and the indexes related to such risks shall be
publicly disclosed.
(2) When the collective investment property of a collective investment scheme, which
is allowed to invest its property in over-the-counter
derivatives to the extent that the
assessed risks contingent to the trading of over-the-counter derivatives exceed the
guidelines
prescribed by Presidential Decree, is invested in such over-the-counter
derivatives, the collective investment business entity shall
prepare a risk management
scheme for management of over-the-counter derivatives, and shall report to the
Financial Services Commission
subject to a prior confirmation of the trust business
entity that keeps in custody and manages the collective investment property.
Article 94 (Special Cases Concerning Management of Real Property)
(1) A collective investment business entity may, when it acquires
real estate as part of
the collective investment property, borrow money on the collective investment
scheme's account in accordance
with the manner prescribed by Presidential Decree,
notwithstanding the main sentence of Article 83 (1).
(2) A collective investment
business entity may lend money to a corporation which
operates a real estate development project (including real estate trust business
entities
and other persons specified by Presidential Decree) out of the collective investment
property in accordance with the manner
prescribed by Presidential Decree,
notwithstanding Article 83 (4).
(3) A collective investment business entity shall, whenever it acquires or disposes of real
estate for the collective investment
property, prepare and keep a due-diligence report,
which shall contain the current status of the real estate, its trading price,
and other
matters prescribed by Presidential Decree.
(4) A collective investment business entity shall, whenever it intends to invest the
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collective investment property in a real estate development project, prepare a business
plan, which shall contain the timetable
and method for promotion, and other matters
prescribed by Presidential Decree, subject to confirmation from an appraiser under
the Public Notice of Values and Appraisal of Real Estate Act on whether the business
plan is feasible, and shall publicly disclose
it through its official website.
(5) When real estate is acquired as part of the collective investment property, the
description
of beneficiaries may be omitted in the written statement that shall be
attached to an application for the registration of trust,
in applying Article 123 of the
Registration of Real Estate Act.
(6) Matters pertaining to the limits of borrowing and lending money under paragraphs
(1) and (2), the restriction on management
of borrowed money, etc. shall be prescribed
by Presidential Decree.
Article 95 (Liquidation)
(1) The Financial Services Commission shall supervise the affairs related to liquidation
of a financial investment business entity
that has engaged in a collective investment
business.
(3) The Financial Services Commission shall, when a financial investment business entity
that has engaged in a collective investment
business is dissolved due to the revocation
of its authorization for its financial investment business, appoint a liquidator ex
officio.
(4) The Financial Services Commission shall, if a financial investment business entity
that has engaged in a collective investment
business is dissolved by an order or a
judgment of a court or if there is no liquidator, appoint a liquidator ex officio or
upon
request of an interested party.
violation of any Act and subordinate statute, the Financial Services Commission may
remove the liquidator ex officio or upon request
of an interested party.
Sub-Section 3 Investment Limited Partnership Company
Article 96 (Fiduciary Duty of Due Care and Duty of Good Faith)
(1) An investment
advisory business entity owes the fiduciary duty of due care to investors
in providing advice for investment, and a discretionary
investment business entity owes
the fiduciary duty of due care to investors in managing the discretionary investment
property.
(2) An investment advisory business entity and discretionary investment business entity
shall execute its business affairs in good
faith to protect investors' interests.
Article 97 (Execution of Contract)
(1) An investment advisory business entity or discretionary investment business entity
shall, when it intends to execute an investment
advisory contract or a discretional
investment contract with an ordinary investor, deliver written materials containing the
following
matters in advance to the ordinary investor:
1. The scope of advising for investment, the method of providing such service, the
scope of discretionary investment, and the financial
investment instruments
advisable for investment;
2. General guidelines and procedure established by the investment advisory business
entity or discretionary investment business entity,
in connection with the execution
of the investment advisory business or discretionary investment business;
3. Names and major professional experience of executives or employees who actually
operate the investment advisory business or discretionary
investment business;
4. Guidelines and procedure established by the investment advisory business entity
or discretionary investment business entity in
order to prevent conflict of interests
with investors;
5. The fact that the results of investment shall be imputed to each investor in relation
to the investment advisory contract or discretionary
investment contract and matters
concerning the liability of each investor;
6. Matters concerning fees;
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7. The method of notifying investors of the evaluation of performance of investments
and the outcomes of investments (limited to
a discretionary investment contract);
and
8. Other matters prescribed by Presidential Decree as those that serve as important
guidelines for investors' judgment when they
determine whether to sign a contract.
(2) An investment advisory business entity or discretionary investment business entity
shall,
whenever it executes an investment advisory contract or a discretionary
investment contract with an ordinary investor, state the
following matters in the
contract documents delivered to the ordinary investor in accordance with Article 59
(1). In such cases,
the descriptions therein shall not differ from those contained in
the written materials delivered in accordance with paragraph (1):
1. Matters under the subparagraphs of paragraph (1);
2. Matters concerning contractual parties;
3. Contract term and contract date;
4. Matters concerning amendment to and termination of the contract; and
5. The investment trader or investment broker in which the discretionary investment
property is deposited, and names of other financial
institutions and their sales offices.
Article 98 (Prohibition on Unsound Business Conduct)
(1) No invest advisory business entity
or discretionary investment business entity shall
commit any of the following acts. Provided, that such acts may be allowed if there
is no possibility of undermining the protection of investors or sound trade practice,
as prescribed by Presidential Decree:
1. Receiving money, securities, or any other property from an investor for keeping
in custody or deposit;
2. Lending money, securities, or any other property to an investor, or acting as a
broker, making an arrangement, or acting as an
agent of a third-party for lending
a third party's money, securities, or any other property to an investor;
3. Engaging any person other than a professional advisor for investment recommendation
or professional manager to operate the investment
advisory business or discretionary
investment business; and
4. Receiving any consideration in addition to the fees stipulated in the agreement.
(2) In managing the discretionary investment
property, no discretionary investment
business entity shall commit any of the following acts. Provided, that such acts may
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be allowed if there is no possibility of undermining the protection of investors or
sound trade practice, as prescribed by Presidential
Decree:
1. Buying or selling on its own account, or soliciting a third-party to buy or sell,
a financial investment instrument or any other
asset for investment, after determining
to make a purchase or sale, which may produce a significant impact on the price
of the
financial investment instrument or other asset for investment, while managing
the discretionary investment property, but before
putting the determination into action;
2. Buying securities underwritten by itself or a related underwriter for the discretionary
investment property;
3. Buying specific securities (referring to specific securities under Article 172 (1);
hereafter the same shall apply in this subparagraph),
using the discretionary
investment property with an intention to create an artificial market value (referring
to the market value
under Article 176 (2) 1) for the specific securities of a
corporation for which the corporation itself or its related underwriter
was in charge
of the underwriting affairs as prescribed by Presidential Decree;
4. Undermining a specific investor's interest to pursue its own or a third party's interest;
5. Trading the discretionary investment property for another discretionary investment
property, collective investment property, or
trust property managed by itself;
6. Trading the discretionary investment property for the proprietary property of the
discretionary investment business entity or
its interested party;
7. Investing the discretionary investment property in securities issued by the discretionary
investment business entity or its interested
party without the investor's consent;
8. Managing several investors' assets collectively instead of managing the discretionary
investment property separately for each
investor;
9. Obtaining authorization for any of the following acts from an investor:
(a) Designating or changing the investment trader, investment
broker, or any other
financial institution for depositing the discretionary investment property;
(b) Depositing or withdrawing
the discretionary investment property; and
(c) Exercising voting rights or any other rights in securities that belong to the
discretionary
investment property; and
10. Other act specified by Presidential Decree that would likely undermine the protection
of investors or sound trade practice.
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Article 99 (Delivery of Discretionary Investment Report)
(1) A discretionary investment business entity shall prepare a report on
the following
matters (hereafter referred to as "discretionary investment report" in this Article) at
least once every three months,
and shall deliver it to each ordinary investor who signed
the discretionary investment contract: 1. Current status of management of the discretionary investment property; and
2. Time and outcome of trading in a specific asset out of the discretionary investment
property for the proprietary property of the
discretionary investment business entity
and the balance thereof, if there was such transaction.
(2) Matters pertaining to the
mandatory descriptions of the discretionary investment report,
the delivery method thereof shall be prescribed by Presidential Decree.
Article 100 (Special Cases Concerning Offshore Investment Advisory Business
Entity)
(1) Articles 22 through 36, 38, 40, 41, 44, 45, 50 through 52, 56, and 61 through 63
shall not apply to foreign investment advisory
business entities (hereinafter referred
to as "offshore investment advisory business entities") or foreign discretionary
investment
business entities (hereinafter referred to as "offshore discretionary
investment business entities") that engage in the investment
advisory business or
discretionary investment business under the proviso to Article 18 (2) 1.
(2) An offshore investment advisory
business entity or offshore discretionary investment
business entity shall have a person in charge of liaison, who shall meet the
requirements
prescribed by Ordinance of the Prime Minister, within this country for protection of
investors.
(4) An offshore investment advisory business entity or offshore discretionary investment
business entity shall prepare the proper
guidelines and procedures with which its
executives or employees shall comply in performing their duties in order to monitor
whether
the matters provided for in Article 98 are complied with, and shall monitor
the actual status of its operation on a regular basis.
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(5) An offshore investment advisory business entity or offshore discretionary investment
business entity shall prepare a business
report in accordance with the manner prescribed
by Presidential Decree, and shall submit it to the Financial Services Commission.
(6) No offshore discretionary investment business entity shall engage in the discretionary
investment business with an aim to soliciting
for investment any person other than
those specified by Presidential Decree from among professional investors.
(7) An offshore
discretionary investment business entity shall keep foreign currency
securities acquired as the discretionary investment property
in a foreign depository
institution specified by Presidential Decree.
(8) Other matters pertaining to the business method, procedure, etc. for offshore investment
advisory business entities or offshore
discretionary investment business entities shall
be prescribed by Presidential Decree.
Article 101 (Reporting on Quasi-investment Advisory Business)
(1) A person who intends to engage in a business for providing advice
concerning
judgments on investment in financial investment instruments or the value of financial
investment instruments, as prescribed
by Presidential Decree, through a periodical
published for a multiple number of unspecified people, by electronic mail, etc.
(hereafter
referred to as "quasi-investment advisory business" in this Article) shall
file a report with the Financial Services Commission
in the form determined by the
Financial Services Commission, and provided by public notice.
(2) A person who engages in a quasi-investment advisory business shall, if any of the
following events occur, report such event
to the Financial Services Commission within
two weeks: 1. When the quasi-investment advisory business is closed down;
2. When its name or domicile is changed; and
3. When its representative is changed.
(3) The Financial Services Commission may, if deemed necessary for maintaining order
in the
quasi-investment advisory industry, protecting customers, etc., demand that a
person who engages in a quasi-investment advisory
business submit materials
concerning the details of its business, the business method, etc.
584 Ministry of Government Legislation
(4) Article 98 (1) (excluding subparagraph 3 thereof) shall apply mutatis mutandis to any
person who is obligated to file a report
in accordance with paragraph (1).
Sub-Section 4 Rules on Business Conduct by Trust Business Entities
Article 102 (Fiduciary Duty
of Due Care and Duty of Good Faith)
(1) A trust business entity owes the fiduciary duty of due care to beneficiaries in managing
the trust property.
(2) A trust business entity shall execute its business affairs in good faith to protect
beneficiaries' interests.
Article 103 (Restrictions on Trust Property)
(1) No trust business entity shall accept for trust any property other than those set forth
in the following subparagraphs:
1. Money;
2. Securities:
3. Monetary claims;
4. Chattels;
5. Real property; and
6. Superficies, a right to lease on a deposit basis, a right to lease a real estate, a
claim for registration of transfer of ownership
of a real estate, and other rights
related to real property; and
7. Intangible property rights (including intellectual property rights).
(2) Any trust business entity may be entrusted with two or
more assets comprehensively
among the assets under the subparagraphs of paragraph (1) by a trustor under a single
trust contract.
(3) Matters pertaining to the entrustment of assets under subparagraphs of paragraph (1),
the kinds of trust in connection with
acceptance of a comprehensive property trust
under paragraph (2), compensation for losses, guarantee for returns, and other terms
and conditions of trust transactions shall be prescribed by Presidential Decree.
(4) A trust business entity may, when it executes
a trust contract for the purpose of real
estate development projects, be entrusted with an asset under paragraph (1) 1 for each
real estate development project under such trust contract within the limit of 15/100
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of the project cost prescribed by Presidential Decree.
Article 104 (Separation of Trust Property from Proprietary Property)
(1)
The proviso to Article 31 (1) of the Trust Business shall not apply to any trust business
entity.
(2) A trust business entity may acquire a trust asset as part of its proprietary property
in accordance with the terms and conditions
of a trust contract in any of the following
cases:
1. Where it is necessary for performing the obligation that it owes to beneficiaries
as a consequence of its trust activities [limited
to cases where the asset acquired
in the course of a management of monetary trust asset has a market value (referring
to the market
value under Article 176 (2) 1) in the securities exchange, the derivatives
market, or an overseas market similar to any of the aforesaid
markets]; and
2. Where it is unavoidable in order to terminate the trust contract or to protect
beneficiaries for any other reason, as prescribed
by Presidential Decree (limited
to a trust contract under which losses shall be compensated or returns shall be
guaranteed, in
accordance with Article 103 (3)).
Article 105 (Restrictions on Management of Trust Property)
(1) A trust business entity shall manage the money within the trust property
in accordance
with the following methods:
1. Purchasing securities (limited to the securities specified by Presidential Decree);
2. Purchasing exchange-traded or over-the-counter derivatives;
3. Depositing the money in a financial institution, as specified by Presidential Decree;
4. Purchasing monetary claims;
5. Making loans;
6. Purchasing bills;
7. Purchasing commodities;
8. Purchasing intangible property rights;
9. Purchasing or developing real estate; or
10. The methods specified by Presidential Decree, considering the safety, profitability,
etc. of the trust property.
(2) No trust business entity shall borrow money for the proprietary property of the trust
586 Ministry of Government Legislation
business entity on the trust's account, except where it is entrusted with only the assets
under Article 103 (1) 5 and 6 or where
there exists any ground prescribed otherwise
by Presidential Decree.
(3) Matters pertaining to the specific extent, conditions, limitations of management of
trust property under paragraphs (1) and
(2), and other methods of, and restrictions
on, management of trust property shall be prescribed by Presidential Decree.
Article
106 (Management of Surplus Fund)
A trust business entity shall, when it is entrusted with only the assets under Article 103
(1) 5 and 6, manage the surplus fund
raised in the course of management of such trust
property in accordance with the following methods:
1. Depositing the money in a financial institution specified by Presidential Decree;
2. Purchasing national bonds, local government bonds, or special bonds;
3. Purchasing securities for which the payment is guaranteed by the Government or a
financial institution specified by Presidential
Decree; or
4. Other methods specified by Presidential Decree as those that will not undermine the
safety, profitability, etc. of trust property
under Article 103 (1) 5 and 6.
Article 107 Deleted. 1. Buying or selling financial investment instruments or any other asset for investment
on its own account or soliciting a third-party
to buy or sell such instruments or assets
after determining to make a purchase or sale, which may produce a significant impact
on the price of the financial investment instruments or other assets for investment, but
before putting the decision into action,
while managing the trust property;
2. Buying securities underwritten by itself or a related underwriter for the trust property;
3. Buying specific securities (referring to specific securities, etc. under Article 172 (1);
hereafter the same shall apply in this
subparagraph), using the trust property with an
intention to create an artificial market value (referring to the market value under
Article
176 (2) 1) for the specific securities of a corporation for which it itself or its related
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Investment in Korea 587
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underwriter was in charge of the underwriting affairs prescribed by Presidential Decree;
4. Undermining a specific trust property's interest to pursue its own or a third party's
interest;
5. Trading the trust property for any other trust property, collective investment property,
or discretionary investment property
managed by the trust business entity;
6. Trading the trust property for the proprietary property of the trust business entity or
its interested party;
7. Investing the trust property in securities issued by the trust business entity or its
interested party without consent of beneficiaries;
8. Engaging any person other than fund managers to manage the trust property; and
9. Other acts specified by Presidential Decree as an act likely to undermine the protection
of beneficiaries or sound trade practice.
Article 109 (Trust Contract)
A trust business entity shall, whenever it executes a trust contract with a trustor, state
the following matters in the contract
documents delivered to the trustor in accordance
with Article 59 (1):
1. Name or designation of the trustor, the beneficiaries, and the trust business entity;
2. Matters concerning designation and change of beneficiaries;
3. Kinds, quantity and value of the trust property;
4. Purpose of trust;
5. Contract term;
6. Details of specific assets, if there are assets specified for acquisition in the course
of management of the trust property;
7. Matters concerning the rate of compensation or guarantee, if losses shall be
compensated for or returns shall be guaranteed;
8. Matters concerning remuneration to which the trust business entity shall be entitled;
9. Matters concerning termination of the trust contract; and
10. Other matters prescribed by Presidential Decree as necessary for the protection of
beneficiaries or sound trade practice.
Article 110 (Beneficiary Certificate)
(1) A trust business entity may issue beneficiary certificates that represent the beneficial
588 Ministry of Government Legislation
interest under a monetary trust contract.
(2) A trust business entity shall, whenever it intends to issue beneficiary certificates under
paragraph (1), file a report with
the Financial Services Commission along with the
accompanying documents specified by Presidential Decree.
(3) Beneficiary certificates shall be in bearer form. Provided, that they may be issued
in registered form if there is such request
from beneficiaries.
(4) Registered beneficiary certificates may be changed to bearer certificates upon such
request of beneficiaries.
(5) Each beneficiary certificate shall contain the following descriptions and shall bear the
printed name, and an affixed seal,
or it shall be signed by the representative of the
trust business entity:
1. Trade name of the trust business entity;
2. Name or designation of beneficiary if it is in registered form;
3. Par value;
4. Details of the management method agreed upon, if any;
5. Details of compensation or guarantee, if there is a condition to compensate for
losses or guarantee of returns in accordance with
Article 103 (3) in the contract;
6. Trust contract term;
7. Time period and place for repayment of principal of the trust and distribution of
earnings;
8. Calculation method of remuneration for trust; and
9. Other matters prescribed by Presidential Decree.
(6) In cases where beneficiary certificates have been issued, the beneficial
interest under
the relevant trust contract shall be transferred or exercised along with the beneficiary
certificates. Provided,
that the beneficial interest may be transferred or exercised
without the beneficiary certificates if they are registered beneficiary
certificates.
Article 111 (Repurchasing Beneficiary Certificates)
A trust business entity may repurchase beneficiary certificates
for its proprietary property
in accordance with the manner prescribed by Presidential Decree. In such cases, Article
29 of the
Trust Business Act shall not apply.
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Article 112 (Voting Rights)
(1) The rights for stocks acquired for the trust property shall be exercised by the trust
business entity.
(2) In exercising voting rights for stocks that are part of the trust property, a trust business
entity shall exercise the voting
rights so as not to produce an impact on a resolution
made by the number of stocks calculated by subtracting the number of the stocks
that are part of the trust property from the stocks held by shareholders who were
present at the general meeting of shareholders
of the corporation that issued the stocks
that are part of the trust property, notwithstanding paragraph (1), in any of the following
cases. Provided, that the same shall not apply in cases where the corporation that
issued the stocks that are part of the trust
property is merged, its business is transferred,
it acquires any business transferred, an executive is appointed or dismissed, or
there
is any other cause or event similar to the aforesaid, and if it is obviously foreseeable
that such event or cause will result
in any loss to the trust property:
1. When any of the following persons attempts to include the corporation that issued
the stocks that are part of the trust property,
in a group of its affiliated companies:
(a) The trust business entity or any person who has a special relationship as specified
by Presidential Decree with the business entity; and
(b) A person who has de facto control over the trust business entity, as specified
by Presidential Decree;
2. When the corporation that issued the stocks, that are part of the trust property,
has any of the following relationships with
the trust business entity:
(a) When it is an affiliated company; and
(b) When it has a relationship as prescribed by Presidential Decree under which
it exercises de facto control over the trust business
entity; and
3. When there is a possibility of undermining the protection of beneficiaries or
appropriate management of the trust property, as
prescribed by Presidential Decree.
(3) No trust business entity may exercise the voting rights for the stocks that belong to
the
trust property, if they fall under any of the following subparagraphs:
1. Excess stocks, in cases where such stocks have been acquired in excess of 15/100
of the total number of the stocks issued by an
identical corporation; and
2. Stocks of a corporation that issued stocks that belong to the trust property, if the
corporation engages the trust property to
acquire them under the trust contract with
an intention to secure treasury stocks.
590 Ministry of Government Legislation
(4) No trust business entity shall commit any act to avoid the application of the provisions
of paragraphs (2) through (3) by exercising
the voting rights one with another
interactively under an agreement with a third party.
(5) The proviso to paragraph (2) shall
not apply to any trust business entity that belongs
to an enterprise group subject to a restriction on mutual investment.
(6) The
Financial Services Commission may, when any trust business entity exercises
the voting rights for stocks that belong to the trust
property in violation of paragraphs
(2) through (5), issue an order to dispose of such stocks within a given period of
time not
exceeding six months.
(1) A beneficiary may request a trust business entity, in writing with the reasons contained
therein, to allow him/her to inspect
books of account and documents related to the
trust property, in which he/she has an interest, during business hours, or to issue
a
certified copy or abstract of such books of account and documents. In such cases,
the trust business entity shall not reject
such request, unless a justifiable ground exists
as prescribed by Presidential Decree.
(2) Matters pertaining to the extent of the books of account and documents subject to
the request for inspection or issuance of
a certified copy or abstract thereof under
paragraph (1) shall be prescribed by Presidential Decree.
Article 114 (Accounting of
Trust Property)
(1) In accounting the trust property, a trust business entity shall follow the general
accounting principles that the Financial
Services Commission prescribes and publicly
notifies after going through deliberation of the Securities and Futures Commission.
(2) The Financial Services Commission may entrust the establishment or amendment of
the general accounting principles under paragraph
(1) to a non-governmental
Corporation or organization with expertise, as prescribed by Presidential Decree. In
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such cases, such non-governmental corporation or organization shall, upon establishing
or amending the general accounting principles,
report such principles to the Financial
Services Commission without delay.
(6) The accounting auditor shall comply with the guidelines for audit under paragraph
(9) and the guidelines for accounting audit
under Article 5 of the Act on External
Audit of Stock Companies in conducting an accounting audit.
(7) The accounting auditor may request the trust business entity to allow him/her to inspect
and copy relevant materials, including
books of account of the trust property, or
demand that it submit materials as may be necessary for the accounting audit. In such
cases, the trust business entity shall comply with the request or demand without delay.
(8) Article 9 of the Act on External Audit
of Stock Companies shall apply mutatis mutandis
to the accounting audit of the trust property under paragraph (3).
(9) Matters
pertaining to the guidelines for appointment of an accounting auditor, guidelines
for audit, authority of the accounting auditor,
and the submission, publication, etc.
of the accounting audit report shall be prescribed by Presidential Decree.