Regulators Ease Rules on Stock Trading for Foreign Investors

By Park Hyong-ki

Staff Reporter

The regulatory body said it has eased rules on securities transactions for foreign investors as part of moves to upgrade the nation's capital market to international standards.

The Financial Supervisory Service (FSS) has strictly restricted the transactions of Korean stocks and bonds by foreign investors on the over-the-counter (OTC) market. It had allowed them to trade securities on the OTC market in 16 areas, but added three more to the list.

Beginning Jan. 1, the FSS will allow foreign investors to buy and sell shares on the OTC market, which are dual-listed on the Korea Exchange (KRX) and an overseas stock market. They will not have to obtain regulatory approval and file their share certificates with the Korea Securities Depository (KSD). Foreign investors will only have to report their OTC stock transactions after buying and selling shares of dual-listed Korean companies to the regulators.

This easing of rules is aimed to help Korea be included in the FTSE developed index list next year.

Currently, foreign investors have to withdraw their share certificates that prove their ownership of shares in dual-listed Korean companies from an overseas clearing and depository agency, and report it to the Ministry of Finance and Economy, gain approval from the Financial Supervisory Commission and re-deposit such certificates at the KSD in advance before trading such shares on the local securities market.

Trading Between Foreign Equity Funds

This long and rigorous process made it hard for smooth OTC transactions for foreigners. The FSS said it relaxed such rules to boost OTC trading of STX Pan Ocean, KODEX200 and other stocks expected to be dual-listed in the near future, as the regulators also eased rules of dual-listing, giving more freedom to companies on where they want to go public overseas under more lenient regulations. Shares of STX Pan Ocean are listed on the Singapore Exchange and the KRX. KODEX200 Exchange-Trade Fund is listed on the Tokyo Stock Exchange and the KRX.

The regulators also relaxed off-exchange trading between foreign equity funds managed by a single asset management company. For instance, a fund manager who manages a number of funds at a firm can make OTC transactions at a fair market price between those funds for customers. If fund managers wanted to sell and buy stocks purchased under a fund, they previously had to do it during trading sessions, but not after hours or over-the-counter.

In addition, foreign investors can now invest in state bonds to trade between themselves on the OTC market through an omnibus account of internationally recognized securities depositories such as Euroclear and ClearStream. Previously, the country did not allow such international accounts for bond investments, and foreigners had to register their names and create an account at domestic securities companies prior to investing in listed bonds such as Korean treasury bonds and monetary stabilization bonds.

Separately, it also eased rules concerning the trading of shares of companies with foreign ownership ceilings. The determination of whether foreign acquisition has reached the cap will be made at the time when the orders are matched, from when the orders are made. It will help provide more opportunities to buy these stocks with foreign caps, it said.

``We expect such a relaxation of rules will spur foreign trading on the market,'' said an official of the FSS.

Foreign stock holdings account for over 31 percent of the total, and foreign investments in state bonds account for about 4 percent, it said.

phk@koreatimes.co.kr