REGULATION

ON

SUPERVISION OF SECURITIES BUSINESS

Regulation on Supervision of Securities Business

CONTENTS

I.	Authorization and Licensing

§1-1.	Purpose

§1-2.	Classification of Procedures for Authorization and Licensing

§1-3.	Receipt of Application for Preliminary Authorization and Licensing

§1-4.	Public Notice of the Fact of Application and Collection of Opinions

§1-5.	Review of Preliminary Authorization and Licensing

§1-6.	Waiver of Preliminary Authorization and Licensing

§1-7.	Receipt of Application for Authorization and Licensing

§1-8.	Authorization and Licensing

§1-9.	Supplementation of Data

§1-10.	Reviewing Standards for Licensing Securities Business

§1-11.	Reviewing Standards for Authorizing Merger

§1-12.	Reviewing Standards in Granting Authorization for Assignment and	Assumption of Business and for Conversion

§1-13.	Requirements for Registration of Foreign Exchange Business

§1-14.	Application for Business Expansion

§1-15. Criteria for Risk Management and Internal Control of OTC Financial	Derivatives Transaction

II.	Financial Soundness

Chapter 1. Accounting

§2-1.	Purpose

§2-2.	Fiscal Year

§2-3.	Application Standards

§2-4.	Asset Classification

§2-5.	Allowance Accumulation Standards

§2-6. ＿Deletedａ

Chapter 2. Maintenance of Financial Soundness

Section 1. General Provisions

§2-7.	Purpose

§2-8.	Definitions

§2-9.	Application Standards

§2-10.	Principle of Market Price Basis

Section 2. Net Capital Ratio

Subsection 1. Net Capital

§2-11.	Maintenance of Net Capital Ratio

§2-12.	Net Capital

§2-13.	Deduction Items

§2-14.	Adding Items

§2-15.	Subordinated Debts

Subsection 2. Calculation of Gross Risk Amount by Standard Model

§2-16.	Gross Risk Amount

§2-17.	Market Risk Amount

§2-18.	Calculation of Stock Risk Amount

§2-19.	Calculation of Interest Rate Risk Amount

§2-20.	Calculation of the Risk Amount of Beneficiary Certificate

§2-21.	Calculation of Foreign Exchange Risk Amount

§2-22.	Calculation of Option Risk Amount

§2-23.	Calculation of Underwriting Risk Amount

§2-24.	Calculation of Counter-party Risk Amount

§2-25.	Calculation of Fundamental Risk Amount

§2-26.	Calculation of Credit Concentration Risk Amount

§2-26-2.Calculation of Total Risk Amount in OTC Financial Derivatives Transaction

Subsection 3. Risk Amount Computed under Internal Model

§2-27.	Calculation of Market Risk Amount under Internal Model

§2-28.	Internal Model Requirements

§2-29.	Back-Testing of Internal Model

§2-30.	Eclectic Use of Internal Model and Standard Model

Section 3. Management Performance Evaluation and Prompt Corrective Action

Subsection 1. Management Performance Evaluation

§2-31.	Management Performance Evaluation

Subsection 2. Prompt Corrective Action

§2-32.	Management Improvement Recommendation

§2-33.	Management Improvement Requirement

§2-34.	Management Improvement Order

§2-35.	Deferment of Prompt Corrective Measures

§2-36.	Submission and Evaluation of Management Improvement Plan, Etc.

§2-37.	Implementation Period of Management Improvement Plan

§2-38.	Report on Implementation of Management Improvement Plan and Request for	Correction

§2-39.	Measures against Non-Fulfillment of Management Improvement Plan

§2-40.	Emergency Measures

§2-41.	Concluding Management Improvement Agreement

Section 4. Valuation of Assets and Liabilities and Calculation of Ratio of Assets to Liabilities

§2-42.	Valuation Methods of Assets and Liabilities

§2-43.	Ratio of Assets to Liabilities

Section 5. Foreign Exchange Soundness

§2-44.	Ratio of Foreign Exchange Liquidity

§2-44-2.Classification of Foreign Exchange Position

§2-44-3.Ceiling on Foreign Exchange Position

§2-44-4.Permission of Separate Ceiling on Foreign Exchange Position

§2-44-5.Ceiling Management

§2-44-6.Exclusion from Management of Ceiling on Foreign Exchange Position

§2-45.	Sanctions for Failure to Achieve Foreign Currency Liquidity

§2-45-2.Sanctions against Violation of the Ceiling on Foreign Exchange Position

§2-46.	Status Report on Sanctions

Section 6. Internal Control of Risks

§2-47.	Preparation of Risk Management Guidelines

§2-48.	Internal Control of Foreign Exchange Business Handling Securities Company

§2-49.	Keeping Records on Off -Balance -Sheet Transactions

Chapter 3. Financial Soundness of Acquiring or Converting Securities Company

Section 1. General Provisions

§2-50.	Purpose, etc.

Section 2. Converted Securities Company

§2-51.	Handling of Trust-Type Securities Savings

§2-52.	Suspension of Application

Section 3. Acquiring Securities Companies

§2-53.	Exceptions to the Calculation of Shareholders' Equity

§2-54.	Credit-Related Assets

§2-55.	Accounting

§2-56.	Merchant Bank Assets and Liabilities Table

§2-57.	Classification of Asset Soundness

§2-58.	Exceptions in Calculating Net Capital Ratio

§2-59.	Exceptions of Credit Extension to Persons Having a Special Relationship

§2-60.	Liquidity Ratio

Chapter 4. Restriction on Specific Financial and Managerial Acts

§2-61.	Ceiling on Holding of Securities, etc. Issued by Persons Having a Special	Relationship

§2-62.	Payment Guarantee on Corporate Bonds

§2-63.	Restriction on Guarantee of Liabilities for Others

§2-64.	Mutatis Mutandis Application of Other Provisions

Chapter 5. Matters to be Reported

§2-65.	Purpose

§2-66.	Filing of Closing Documents

§2-67.	Filing of Business Report

§2-67-2.Reporting on OTC Financial Derivatives

§2-68.	Status Report on Foreign Exchange Business

§2-69.	Public Notice of Account Settlement by Domestic Branches of Foreign	Securities Companies

Chapter 6. Supplementary Provisions

§2-70.	Management Disclosure

§2-71.	Delegation of Power

III.	Administration of Customer's Deposit

§3-1.	Purpose

§3-2.	Deposit Requirement and Deposit Term

§3-3.	Operation of Separate Deposit

§3-4.	Withdrawal of Separate Deposit

§3-5.	Agreement on Administration of Separate Deposit

§3-6.	Administration of Customers' Deposits not Separately Deposited

§3-7.	Exceptions to Securities Companies with Unsound Financial Condition

§3-8.	Compensation for Use of Customer's Deposit

§3-9.	Administration of Deposited Customers' Securities

§3-10.	Delegation of Power

IV.	Business Practice in General

Chapter 1. General Provisions

§4-1.	Purpose

§4-2.	Scope of Applications

§4-3.	No Action Letter

§4-4.	General Principles of Business

Chapter 2. Prohibition of Unsound Business

§4-5.	Prohibition of Front Running

§4-6.	Prohibition of Investment Recommendation for Trading on Own Account

§4-7.	Preparation and Disclosure of Research Analysis Materials

§4-8.	Prohibition of Compensation for Losses

§4-9.	Notification of Risk for Day-Traders

§4-10.	Prohibition of Acceptance of Illegal Trading Orders

§4-11.	Prohibition of Offering Illegal Benefits to Asset Managers

§4-12.	Prohibition of Limiting Competition

§4-13.	Prohibition of Consulting by Unqualified Account Executive

Chapter 3. Investment Recommendation

§4-14.	Prohibition of Promoting Excessive Transactions

§4-15.	Investment Recommendation

§4-16.	Prevention of Conflict of Interests Relating to Recommendation of Trading

Chapter 4. Provision of Information to Customers

§4-17.	Provision of Information Prior to Transaction

§4-18.	Notification of Securities Transactions

§4-19.	Notification of Monthly Details of Securities Transactions

Chapter 5. Sales of Collective Investment Products

§4-20.	Neutrality of Sales of Collective Investment Product

Chapter 6. Financial Derivatives Business

§4-21.	Opening an Account

§4-22.	Business Manager of Financial Derivatives

Chapter 7. Execution of Securities Transactions

§4-23.	Receipt of Order

§4-24.	Computerized Order Handling

§4-25.	Best Execution

§4-26.	Legitimate Transaction Order Placer

Chapter 8. Settlement of Accrued Receivables

§4-27.	Prevention of Receivables Accruals

§4-28.	Request for Additional Payment of Customer Margin for Futures and Options

§4-29.	Appropriation of Receivables from Customers

§4-30.	Restriction on Receiving Orders

Chapter 9. Commissions, Payment, Incentives and Merit-based Payment

§4-31.	Commissions

§4-32.	Restriction on Commission Distribution

§4-33.	Restriction on Merit-based Payment

Chapter 10. Advertisement and Disclosure to General Public

§4-34.	Internal Regulation on Advertisement

§4-35.	Establishment of Association's Principle on Advertisement

§4-36.	Provision of Information Relating to the Company Itself to Media Institutions

§4-37.	Providing of Information Relating to Investment in Securities

§4-38.	Providing of Information Obtained from Third Party

Chapter 11. Customer Agreements

§4-39.	Scope of Applications

§4-40.	Standard Customer Agreements

§4-41.	Establishment of Individual Customer Agreements

§4-42.	Recommendation of Changes in Customer Agreements

§4-43.	Report on Changes in Customer Agreements

§4-44.	Entrustment of Affairs to Review Customer Agreements

Chapter 12. Standards for Internal Regulation

§4-45.	Establishments and Application of Internal Regulation Standards

Chapter 13. Record Keeping and Management

§4-46.	Record Keeping

Chapter 14. Supplementary Rules

§4-47.	Limitation of Selling Securities Issued by a Securities Company

§4-48.	Prohibition of Setting up Franchise Business Units.

§4-49.	Execution of Discretionary Transaction Contract

§4-50.	Management of Discretionary Transaction Account

§4-51.	Special Exceptions to Futures and Option Transaction

§4-52.	Special Exceptions to Execution of Orders by Non-Member Firms

§4-53.	Delegation of Detailed Matters

V.	Business Practice By Sector

Chapter 1. Credit Extension

Section 1. General Provisions

§5-1.	Purpose

§5-2.	Exceptions to Collateral Assessment

Section 2. Stock Subscription Loan

§5-3.	Loan Ceiling

§5-4.	Collection of Collateral

§5-5.	Assessment Price of Collateral

§5-6.	Exercise of Collateral Right

Section 3. Margin Transaction Loan and Lent Stocks

§5-7.	Opening of Margin Transaction Account

§5-8.	Margin Issues

§5-9.	Margin Transaction Ceiling

§5-10.	Margin Requirement

§5-11.	Collection of Collateral

§5-12.	Forced Redemption

§5-13.	Method of Forced Redemption

§5-14.	Redemption

§5-15.	Prohibited Practices

§5-16.	Filing of Data

Section 4. Loan for Buying Securities

§5-17.	Collection of Collateral

§5-18.	Assessment Value of Collateral

§5-19.	Exercise of Security Right

Section 5. Loan Secured by Deposited Securities

§5-20.	Collection of Collateral

§5-21.	Exercise of Security Right, Assessed Value of Collateral

Section 6. Supplementary Provisions

§5-22.	Report on Interest Rate of Credit Extension

§5-23.	Sanction against Securities Company

§5-24.	Enforcement Rules

Chapter 2. OTC Trading of Securities

Section 1. General Provisions

§5-25.	Purpose

§5-26.	Definitions

§5-26-2.＿Deletedａ

Section 2. OTC Trading of Bonds

§5-27.	Method of Settlement

§5-28.	Short Sale of Bonds

§5-29.	Contracted Unit Price

§5-30.	Posting of Yield Quotation

§5-31.	Publication of OTC Trading Yield

§5-32.	Obligation to Administer Retail Bond Trading

Section 3. RP Trading

§5-33.	Securities Eligible for Trading

§5-34.	Corporations Eligible for Trading

§5-35.	Unit Price of Contract

§5-36.	Date of Repurchase or Resale

§5-37.	Custody, etc. of Securities Sold

§5-38.	Settlement Method of RP Trading between Institutions

§5-39.	Service Agreement

§5-40.	Status Report

Section 4. OTC Trading of Odd Lot

§5-41.	Trading Method

§5-42.	Purchase of Odd Lot through Agent

§5-43.	Contracted Unit Price

§5-44.	Method of Settlement

§5-45.	Opening of Joint Account

§5-46.	Obligation to Process Odd Lot Trading

Section 5. OTC Trading of Unlisted and Non-Registered Stock

§5-47.	Operation of Quotation System

§5-48.	Obligation of Securities Companies Applying for Designation

§5-49.	Settlement Method

Section 6. Trading and Brokerage of CPs

§5-50.	Application of Multi-Credit Ratings

§5-51.	Restrictions on CP Handling Methods

§5-52.＿Deletedａ

Section 7. Supplementary Provisions

§5-53.	Trading Place

§5-54.	Periodic Report

§5-55.	Detailed Provisions

Chapter 3. Securities Savings

§5-56.	Purpose

§5-57.	Opening of Accounts

§5-58.	Fees

§5-59.	Termination and Cancellation of Contract

§5-60.	Securities Eligible for Savings

§5-61.	Detailed Provisions

Chapter 4. Concurrently-Conducting and Incidental Businesses

Section 1. General provisions

§5-62.	Purpose

Section 2. Concurrently Conducting Businesses

§5-63.	Wrap Account

§5-63-2.OTC Financial Derivatives Transaction Business

Section 3. Incidental Businesses

§5-64.	Declaration of Incidental Business

§5-65.	Trading and Brokerage of CDs

§5-66.	Method of Brokerage of Loan Transactions

§5-67.	Collection of Collateral

§5-68.	Administration of Collateral

§5-69.	Delivery of Securities Eligible for Loan Transaction

§5-70.	Disclosure of Loan Transaction Details

§5-71.	Delegation of Power

Chapter 5. Trading of Foreign Currency Securities

§5-72.	Purpose

§5-73.	Foreign Currency Securities Eligible for Trading

§5-74.	Receiving of Orders

§5-75.	Settlement

§5-76.	Settlement Date

§5-77.	Notice of Contract

§5-78.	Concentration of Deposit of Foreign Currency Securities

§5-79.	Notice of Exercise of Rights

§5-80.	Money Exchange, Remittance or Receipt

§5-81.	Detailed Provisions

VI.	Report By Securities Companies And Granting Of Approval

§6-1.	Purpose

§6-2.	Matters to be Reported

§6-3.	Matters to be Reported on Overseas Subsidiaries, etc.

§6-4.	Exceptions to Matters to be Reported by Branch of Foreign Securities	Company

§6-5.	Matters to be Reported by Domestic Liaison Office of Foreign Securities	Company

§6-6.	Approval for Trading by Officers and Employees

§6-7.	Approval for Equity Investment

§6-8.	Delegation of Power

VII.	Maintenance of Order in Securities Market

Chapter 1. Inter-Dealer Broker

§7-1.	Purpose

§7-2.	Business Method

§7-3.	Approval for Business Regulation

§7-4.	Prohibition of Divulgence of Confidential Information

Chapter 2. Securities Trading by Foreigners

§7-5.	Purpose

§7-6.	Acquisition Limit

§7-6-2. Ceiling on Acquisition Pertaining to Stock Option

§7-7.	Administration of Acquisition Limit

§7-8.	Restrictions on Securities Trading

§7-9.	Issuance of DRs of Trading Stock

§7-10.	Investment Registration

§7-11.	Refusal and Revocation of Investment Registration

§7-12.	Opening of Accounts

§7-13.	Restriction on Disposition of Deposits

§7-14.	Restriction on Credit Extension

§7-15.	Custody of Securities

§7-16.	Appointment of Standing Agent

§7-17.	Request for Data

§7-18.	Measures in the Case of Violation

§7-19.	Exceptions to Application

§7-20.	Delegation of Power

Chapter 3. Exercise of Voting Right of Deposited Stocks in the Name of the KSD

§7-21. Purpose

§7-22.	Methods, etc. of Request for Exemption of Exercise of Voting Rights

§7-23.	Number of Shares to Exercise Voting Rights

§7-24.	Method of Exercising Voting Rights

§7-25.	Notice by the KSD

§7-26.	Individual or Public Notice by Issuers

§7-27.	Detailed Provisions

Addenda

Enacted on December 29, 2000 FSC 2000-124

Amended on May 3, 2001 FSC 2001-26

Amended on July 3, 2001 FSC 2001-41

Amended on July 19, 2001 FSC 2001-49

Amended on August 1, 2001 FSC 2001-52

Amended on October 4, 2001 FSC 2001-72

Amended on December 19, 2001 FSC 2001-107

Amended on January 4, 2002 FSC 2001-112

Amended on February 27, 2002 FSC 2002-7

Amended on March 20, 2002 FSC 2002-9

Amended on April 1, 2002 FSC 2002-14

Amended on May 1, 2002 FSC 2002-24

Amended on July 18, 2002 FSC 2002-44

Amended on August 1, 2002 FSC 2002-47

PART I.

AUTHORIZATION AND LICENSING

§1-1. Purpose

(1) The purpose of the provisions under this Part is to prescribe the specifics necessary for the enforcement of the pertinent matters applicable under the jurisdiction of the Financial Supervisory Commission (hereinafter, "the FSC") pursuant to Article 28 through Article 32-2 and Articles 35 and 51 of the Securities and Exchange Act (hereinafter, "the Act"), Article 17 through Article 17-3 and Article 24 through Article 27, Article 36 and Article 36-2 of the Enforcement Decree of the Act (hereinafter, "the Decree"), Articles 4, 8, 9 and 24 of the Act on Structural Improvement of Financial Industry (hereinafter, "the Restructuring Act"), Article 5-3 of the Enforcement Decree of the Restructuring Act, and Article 13 of the Enforcement Decree of the Foreign Exchange Transactions Act.

(2) The term "preliminary authorization and permission" herein this Part refers to the intention preliminarily expressed for a prior review of the matters subject to the authorization and licensing and for securing the surety in execution before granting authorization and license, and which has no effect of an authorization and license.

(3) The term "electronic over-the-counter securities brokerage company" herein this Part refers to any securities company conducting business prescribed under Article 2 paragraph (8) subparagraph (8) of the Act.

(4) The terms undefined herein this Part shall be defined pursuant to the relevant statutes.

§1-2. Classification of Procedures for Authorization and Licensing

The procedures for authorization and permission shall be classified into preliminary authorization and permission, and authorization and permission, as shown in the annexed Table 1.

§1-3. Receipt of Application for Preliminary Authorization and Licensing

Any applicant for preliminary authorization and licensing shall file with the FSC an application for preliminary authorization and permission (including any accompanying documentation) for any business subject to such authorization and licensing, as shown in the Annexed Forms 1 through 5-2.

§1-4. Public Notice of the Fact of Application and Collection of Opinions

(1) The FSC shall, when receiving any application for preliminary authorization and permission, make a public notice of the application date, the applicant, the purpose and the contents of the application, and the method of and deadline for opinion presentation through press release, internet home page and other means for the collection of opinions from the Parties of interest.

(2) The FSC may, when deemed necessary, request the relevant authorities and parties of interest to present their opinions on the application for preliminary authorization and permission, in addition to the public notice pursuant to the provisions of paragraph (1).

(3) The FSC shall notify the applicant of any opinion which is judged disadvantageous to such applicant, from among the opinions collected pursuant to the provisions under paragraphs (1) and (2), and give such applicant an opportunity to explain the matters concerned within a specified period.

(4) The FSC may, when it is judged that any application may significantly influence the financial market, hold a public hearing.

§1-5. Review of Preliminary Authorization and Licensing

(1) The Governor of the FSS (hereinafter, "the Governor") shall verify the authenticity of the application information and review whether such information satisfies the reviewing standards under the relevant statutes in consideration of the opinions collected from the Parties of interest, general public, and the relevant authorities.

(2) The Governor may organize and run an evaluation committee for the evaluation of the business plan.

(3) The Governor may conduct an on-site investigation for the confirmation of the application information and may interview the promoters and management.

(4) The FSC shall determine whether to grant preliminary authorization and license. In this case, Article 1-8 paragraphs (1) and (3) shall apply thereto.

§1-6. Waiver of Preliminary Authorization and Licensing

The FSC may, when it deems that any application for authorization and licensing is applicable under any of the following subparagraphs, waive the procedures for preliminary authorization and licensing.

1.	Cases where a prompt merger, conversion or assignment or assumption of business is needed for the restructuring of the financial industry;

2.	Cases where the requirements for authorization and licensing already are satisfied at the time of applying for preliminary authorization and licensing; or

3.	Other cases where it is needed to promptly grant authorization and licensing for the maintenance of credit order in the financial industry or the protection of customers.

§1-7. Receipt of Application for Authorization and Licensing

Any applicant shall, after fulfilling the terms and conditions of the preliminary authorization and licensing, file with the FSC an application for authorization and licensing (including any accompanying documentation), for any business subject to such authorization and licensing, as shown in the Annexed Forms 6 through 11.

§1-8. Authorization and Licensing

(1) The FSC shall determine whether to grant the authorization and licensing in accordance with the reviewing standards prescribed under the relevant statutes with respect of any application for authorization and licensing by any applicant; when it refuses to grant the authorization and licensing, it shall so notify such applicant in writing.

(2) The Governor may conduct on-site investigations to verify fulfillment of the terms and conditions under the preliminary authorization and licensing.

(3) The FSC may attach any of the following conditions when granting the authorization and license:

1.	Conditions that the largest shareholder of any securities company which has obtained the permission for securities business and any Party having a special relationship therewith are required to maintain and not to transfer their respective equity holdings for three years from the date of licensing; or

2.	Conditions that are deemed necessary for the purpose of the statutes governing the authorization and licensing, protection of customers, and the maintenance of sound order in the financial industry.

(4) Any applicant shall commence the authorized or licensed business within six months from the date of authorization and licensing. However, these provisions shall not apply to any case where the FSC has determined otherwise on such period or has approved an extension of such period.

§1-9. Supplementation of Data

(1) The Governor may, when he needs any supplementary documentation or additional data for the review of preliminary authorization and licensing, or of authorization and licensing, request the applicant to file such documents or data within a specified period.

(2) The Governor shall, when there is any condition attached at the time of granting the preliminary authorization and licensing, or the authorization and licensing, confirm the compliance of such condition.

§1-10. Reviewing Standards for Licensing Securities Business

(1) The concrete standards of the detailed requirements for manpower, physical facilities, and business plan pursuant to Article 17-2 paragraphs (1) and (2) of the Decree shall be the same as shown in the Annexed Table 2.

(2) The concrete standards of the detailed requirements for principal investors pursuant to Article 17-2 paragraph (5) of the Decree shall be the same as shown in the Annexed Table 3.

(3) The concrete standards of the detailed requirements for authorization for establishment of any branch of any foreign securities company pursuant to Article 17-3 paragraph (2) of the Decree shall be as follows. However, the provisions under paragraph (1) shall apply mutatis mutandis to manpower, physical facilities, and business plan :

1.	The applicant concerned should satisfy the requirements under subparagraph 1 item d subitems (2) through (4)

2.	The contents of the securities business supervision of the home country of such applicant for permission should be consistent with the internationally recognized supervision standards.

(4) In case any criminal proceedings and investigations against any principal shareholder by the Public Prosecutions Administration, the Fair Trade Commission, the National Tax Service, and the FSS are underway and the FSC deems that any fact subject to investigation may materially influence the review for authorization, the FSC may suspend such review until such fact becomes certain.

§1-11. Reviewing Standards for Authorizing Merger

(1) The FSC shall, when intending to grant an authorization for a merger of any securities company pursuant to Article 35 of the Act or Article 4 of the Restructuring Act, review whether the authorization is consistent with the standards under the following subparagraphs:

1.	The objectives of such merger should be reasonable, such merger contribute to the financial efficiency and should not hinder the financial order and credit transaction order;

2.	The business scope after such merger should be adequate, and the manpower and organization should be systematic and capable to perform the affairs after the merger;

3.	There should be no unfair disadvantage to customers due to the merger;

4.	Any surviving or newly established securities company after the merger should have no difficulty in observing the standards of financial soundness and other restrictions on conducting securities business to be formulated by the FSC;

5.	The procedure for and contents of the merger should have no defect in the light of the Act, Commercial Code, Act on Monopoly Regulation and Fair Trade, and the financial statutes;

6.	Any opinion on the merger by the Fair Trade Commission shall be reasonable; and

7.	Any principal shareholder shall satisfy the requirements of the principal shareholder relevant to the authorization for the merger under the Annexed Table 3.

(2) Notwithstanding the provisions under paragraph (1), the FSC may exempt application of the provisions under paragraph 1 subparagraph (4) with respect of any merger which satisfies all of the following subparagraphs:

1.	Both Parties to the merger shall be securities companies;

2.	The merger shall be executed pursuant to the Restructuring Act; and

3.	The merger should be made by the recommendation, request or order of the Government or for the purposes of restructuring the securities industry.

§1-12. Reviewing Standards in Granting Authorization for Assignment and Assumption of Business and for Conversion

Article 1-11 paragraph (1) shall apply mutatis mutandis to the authorization for assignment and assumption of business pursuant to Article 27 of the Decree and the authorization for conversion pursuant to Article 4 of the Restructuring Act. However, Article 1-11 paragraph (1) subparagraph 6 may not apply thereto.

§1-13. Requirements for Registration of Foreign Exchange Business

(1) "It should have appropriate capital and financial structure in the light of the financial soundness standards to be determined by the FSC" prescribed under Article 13 paragraph (2) subparagraph 1 of the Enforcement Decree of the Foreign Exchange Transactions Act refers to any case satisfying the following requirements:

1.	The capital at the end of the latest fiscal year (including semiannual period) should exceed 3 billion won; and

2.	The net capital ratio mentioned in [Article 2-8 subparagraph 2] should be 150/100 or more.

(2) The Governor shall, when the MOFE requests him/her to confirm whether to satisfy the requirements for registration pursuant to Article 13 paragraph (3) of the Enforcement Decree of the Foreign Exchange Transaction Act, confirm such fact pursuant to the standards under paragraph (1).

§1-14. Application for Business Expansion

Article 1-11 paragraph (1) subparagraph 7 shall apply to the authorization for supplementary business pursuant to Article 51 paragraph (1) subparagraph 2 of the Act and the approval for equity investment pursuant to Article 24 of the Restructuring Act.

□ 1-15. Criteria for Risk Management and Internal Control of OTC Financial	Derivatives Transaction

(1) Criteria for risk management and internal control pursuant to the provisions of Article 36-2 paragraph (2) subparagraph 1 item e are as follows.

1.	Results of comprehensive evaluation pursuant to the Annexed Form 3-2 shall be at least satisfactory.

2.	Notwithstanding the provisions of paragraph (1), the following evaluation scores shall not each exceed 2.4 under the Annexed Form 3-2 item 1 "evaluation item."

a. Organization and human resources for risk management

b. Risk assessment and management performance

c. Risk management and internal control computer system

(2) Specific standards for the evaluation of risk management and internal control under paragraph (1) shall be separately determined by the Governor.

(3) Paragraph (1) or (2) shall be applied mutatis mutandis to confirming whether standards provided under Article 2-12 paragraph (2) subparagraph 1 item d (3) of the Regulation on Foreign Exchange Transaction are satisfied.

PART II.

FINANCIAL SOUNDNESS

Chapter 1.

Accounting

§2-1. Purpose

(1) The purpose of the provisions herein this Part is to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Articles 47, and 54 of the Act and Article 35-13, and Article 37 of the Decree with respect to accounting of every securities company.

(2) [Article 2-4 and Article 2-5] from among the provisions of this Chapter shall not apply to any inter-dealer broker as stipulated under the provisions of Chapter 1 of Part VII (hereinafter, "Inter-Dealer Broker") and any electronic securities brokerage company stipulated under Article 1-1 (hereinafter, "ESBC"); the provisions of this Chapter shall not apply to any securities company which handles the execution of trading contracts on the KOSDAQ market.

§2-2. Fiscal Year

(1) The fiscal year of a securities company shall be from April 1 to March 31 of the following year.

(2) Every securities company shall prepare unaudited financial statements every quarter.

§2-3. Application Standards

Unless otherwise stipulated by this Regulation with respect to accounting, every securities company shall comply with the Accounting Procedure for Securities Industry and the Financial Accounting Standards; provided, however, that the Accounting Standards of Foreign Currency Accounts consigned by the Securities and Exchange Act shall be determined by the Governor.

§2-4. Asset Classification

(1) Every securities company shall classify its assets and liabilities as specified under the following into five categories: "normal", "precautionary", "substandard", "doubtful", and "presumed loss", in such manner as to be determined in the Annexed Table 4:

1.	Loans:

2.	Other receivables;

3.	Accrued income;

4.	Privately-placed bonds;

5.	Long-term loans;

6.	Advance for customers;

7.	Dishonored notes receivable;

8.	Dishonored bonds receivable; and

9.	Guarantee on payment of corporate bonds and guarantee on liability of subsidiaries.

(2) Every securities company shall calculate a reasonable estimated collection value as of the end of each quarter in accordance with the standards as shown in the annexed Table 5 with respect to the claims classified as "substandard" or below pursuant to the provisions under paragraph (1) of this Article.

(3) The Governor shall check the appropriateness of the classification of asset soundness and the accumulation of allowance of every securities company; when he judges any classification as inappropriate through checking, he may request the correction thereof.

§2-5. Allowance Accumulation Standards

(1) Every securities company shall accumulate at least the amount equivalent to the standard ratios in the following as allowance for losses on the assets under Article 2- 4 paragraph (1) subparagraphs 1 through 8:

1.	0.5/100 or more of the assets classified as "normal";

2.	2/100 or more of the assets classified as "precautionary";

3.	20/100 or more of the assets classified as "substandard";

4.	75/100 or more of the assets classified as "doubtful"; and

5.	100/100 or more of the assets classified as "presumed loss"

(2) Notwithstanding the provisions under paragraph (1), from among loan claims classified as normal, every securities company may not accumulate the allowance for losses on call loans and repurchase agreements.

(3) Every securities company shall accumulate, in application of the provisions of paragraph (1), the guarantee allowance with respect to Article 2-4 paragraph (1) subparagraph 9 which is classified as "substandard" or below.

§2-6. [Deleted]

CHAPTER 2.

MAINTENANCE OF FINANCIAL SOUNDNESS

Section 1.

General Provisions

§2-7. Purpose

(1) The purpose of the provisions under this Chapter is to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Article 54 through Article 54-2 and Article 54-3 of the Act, Article 37, Article 37-2, Article 37-3 and Article 84-28  of the Decree, Article 10 of the Restructuring Act and Article 35 of the Enforcement Decree of the Foreign Exchange Transactions Act with respect to the maintenance of financial soundness of every securities company.

(2) The provisions of this Chapter shall not apply to the securities company of which primary function is to maintain KOSDAQ market and performs inter- matching and execution of orders thereof.

(3) When computing the net capital in accordance with the Article 2-12 for Inter-Dealer Broker and ESBC, notwithstanding the provisions under Article 2-13 paragraph (1), only the items under Article 2-13 paragraph (1) subparagraphs 3 and 6 shall be deducted.

(4) Article 2-44 and Article 2-48, from among the provisions of this Chapter, shall not apply to any securities company handling foreign exchange business whose head office is located outside the country.

(5) Article 2-44-5 paragraphs (2) and (3) and Article 2-45-2 paragraphs (1) and (2) shall not apply to securities companies conducting foreign exchange business, which are not applicable under any one of the following subparagraphs.

1.	Where a securities company conducting foreign exchange business deals with transactions under Article 2-12 paragraph (2) subparagraph 1 item c of the Regulation on Foreign Exchange Transaction.

2.	Where a securities company conducting foreign exchange business deals with transactions under Article 2-12 paragraph (2) subparagraph 1 items d and e of the Regulation on Foreign Exchange Transaction.

§2-8. Definitions

The terms used herein this Chapter shall be the same as defined under the following, However, those terms not defined in this Regulation shall have the same meanings as in the Act or elsewhere in the relevant statutes :

1.	The term "marketable securities" refers to the securities in the following:

a. Interest-bearing securities, such as bonds, development trust beneficiary certificates, negotiable CDs, CPs, banker's acceptances, However, those securities whose payments of principal and interest are suspended shall be excluded;

b. Stock certificates or DRs publicly offered on the domestic or overseas markets. However, those whose transactions have been suspended for more than one month due to default of the issuing company shall be excluded;

c. Beneficiary certificates which are listed, or can be cashed through resale or rescission within three months;

d. Securities issued by the securities investment companies which are publicly offered or listed, or can be cashed within three months.

e. Options, certificate of preemptive rights, subscription warrants whose underlying securities are listed or confirmed to be listed on the KSE, KOSDAQ or an approved foreign exchange specified by the annexed Table 6, or those having similar nature thereto;

f. Index futures, index options, or index futures options which are listed or confirmed to be listed on the KSE, the Korea Futures Exchange, or an approved foreign exchange stipulated in the annexed Table 6.

2.	The term "net capital ratio" refers to the percentage ratio of net capital to the gross risk amount, which has the same meaning as the capital adequacy ratio pursuant to Article 54-2 of the Act and the equity ratio pursuant to Article 10 paragraph (1) of the Restructuring Act.

3.	The term "collateral" refers to marketable securities and monetary claims (excluding the securities issued by a counter party of transactions or the persons having a special relationship therewith and the monetary claims thereon) which are offered by the counter party of transactions so as to secure the fulfillment of liabilities and also have no material restriction on prompt recovery of the losses incurred from non-fulfillment of liabilities by a securities company.

4.	The term "person having a special relationship" refers to any of the following persons. However, from among the banking institutions established under the Banking Act and any other special laws (hereinafter, "bank"), any bank which is not subject to the prompt corrective measures pursuant to Article 10 of the Restructuring Act (excluding those which have been exempted from such prompt corrective measures due to the subordinated debentures or subordinated borrowings provided by the securities company concerned) shall not be deemed a person having a special relationship:

a. Officers of the securities company concerned;

b. The largest shareholder of the securities company concerned.

c. Any principal shareholder of the securities company concerned;

d. Any affiliate of the securities company concerned; and

e. In case the person falling under items 4a through 4c is a natural person, his/her spouse, paternal or maternal relatives by blood to the lineal third degree.

5.	The term "claims on the persons having a special relationship" refers to any claim for money or securities against the persons having a special relationship and the securities issued by such persons which are owned by a securities company. However, in case such claims fall under any of the followings, they shall not be deemed the claims on the persons having a special relationship:

a. Cases where any person other than those having a special relationship, from among approved financial institution specified by the Governor, provides guarantee as its business purposes;

b. Cases where collateral such as any claim for money against the persons other than those having a special relationship or any marketable securities, etc, issued by the persons other than those having a special relationship is sufficiently offered;

c. Cases where they have been owned during the period no longer than three months in connection with underwriting business;

d. Any beneficiary certificate under the Securities Investment Trust Business Act and the Trust Business Act; and

e. Any stock certificate issued by any securities investment company under the Securities Investment Company Act.

6.	The term "subsidiary" refers to any company whose voting stock (including equity share having voting rights) is owned by a securities company in such manner as mentioned in the following :

a. Cases where any securities company owns not less than 50/100 of the total number of outstanding voting shares of such company;

b. Cases where any securities company as the largest shareholder owns not less than 30/100 of the total number of outstanding voting shares of such company;

c. Cases where any securities company as the largest shareholder owns not less than 30/100 of the total number of outstanding voting shares of such company, jointly with those falling under item 6a or 6b.

7.	The term "guarantee" refers to, regardless of its title, the guarantee, endorsement, provision of collateral, assumption of obligation, letter of commitment, or others similar thereto, which are made directly or indirectly, so as to secure the fulfillment of a third Party's liabilities.

8.	The term "equity investment" refers to an acquisition of corporate equity by a securities company for the purpose of controlling or Participating in the management. In this case, the acquisition of the shares neither publicly offered nor distributed, the acquisition of the shares of subsidiaries, and the acquisition of any shares when a securities company and any person having a special relationship therewith jointly become the largest shareholder of such securities company shall be deemed the equity investment.

9.	The term "market risk amount" refers to the amount of losses which a securities company may suffer from adverse fluctuations in market price and classified as "ordinary market risk amount" and "specific risk amount."

a. The term "ordinary market risk amount" refers to the amount of probable losses which a securities company may suffer from ordinary fluctuations in market price such as interest rate, stock price, and exchange rate.

b. The term "specific risk amount" refers to the amount of probable losses which a securities company may suffer from adverse fluctuations in specific stock price due to issuer's credit change other than adverse fluctuations in ordinary market price.

10.	The term "counter party risk amount" refers to the amount of probable losses which a securities company may suffer from its counterpart's non- fulfillment of redemption or settlement obligation on himself/herself or third Party.

11.	The term "fundamental risk amount" refers to the amount of probable losses which a securities company may suffer from the misconduct, error, illegal or unfair business practices of its officers or employees, and other deterioration of business environment.

12.	The term "credit concentration risk amount" refers to the amount of losses which a securities company may suffer additionally from its over extension of credit to single borrower or single business group.

13.	The term "standard model" refers to the calculation method for gross risk amount pursuant to the subsection 2 of section 2.

14.	The term "internal model" refers to a risk calculating system which a securities company organizes and operates for the calculation of market risk amount pursuant to the subsection 3 of section 2.

15.	The term "Value at Risk (VaR)" refers to a maximum amount of losses in a certain holding period at a certain significance level when market price changes into non profitable direction.

16.	The term "foreign exchange business handling securities company" refers to a securities company which has registered the foreign exchange business pursuant to Article 8 paragraph (1) of the Foreign Exchange Transaction Act.

§2-9. Application Standards

(1) The provisions of this Chapter, except those otherwise stipulated in this Chapter, shall apply to the financial statements of a securities company which is not consolidated with its affiliates.

(2) The amount by account title which is the base in application of the provisions of this Chapter shall be the book value (the amount after subtracting allowance for valuation) presented in the adjusted financial statements if the financial statements prepared by any securities company pursuant to the provisions of Chapter 1 are inconsistent with the adjusted financial statements as a result of external audit (hereinafter referred to as 'adjusted financial statements').

(3) In applying the provisions of this Chapter, in case any securities company has entrusted any money or other property de facto managed for its own account and own judgment in the name of a third Party, such money and other property shall be deemed to have been owned by such securities company.

§2-10. Principle of Market Price Basis

In applying the provisions of this Chapter, marketable securities, etc. shall be valued at market price.

Section 2.

Net Capital Ratio

Subsection 1.

Net Capital

§2-11. Maintenance of Net Capital Ratio

Every securities company is required to maintain at least 100/100 of its net capital ratio.

§2-12. Net Capital

The net capital shall be the amount calculated by the following formula :

Net capital = amount obtained from subtracting the total liabilities from the total assets in the balance sheet as of the base date (hereinafter referred to as "net assets") - sum of deducting items + sum of adding items.

§2-13. Deduction Items

(1) Items for deduction pursuant to Article 2-12 shall be the amount of assets, etc, in the fo1lowing :

1.	Advance payments, prepaid expenses and prepaid income tax;

2.	Fixed assets;

3.	Claims on the person having a special relationship;

4.	Of subsidiaries' deficits (in case the total liabilities exceed the total assets in the balance sheet as of the end of the latest fiscal year or of the semiannual period, such excess amount; the same hereinafter), the amount equivalent to the equity share owned by a securities company. However, in case such amount is smaller than the liability amount guaranteed by such securities company for such subsidiary, such liability amount;

5.	Overseas claims held by the domestic branches of any foreign securities company (referring to its own or customers' property directly deposited in overseas institutions in its own name; and, loans, receivables, securities receivable, and other claims corresponding thereto for any person living abroad);

6.	Loss resulting from the evaluation of marketable securities by market price (excluding any loss reflected at the time of calculating the current net income);

7.	Balance obtained after subtracting the guarantee allowance concerned from the outstanding guarantee on corporate bonds for which advance for customers is not yet made even though the obligation to pay occurs due to the occurrence of nonpayment by an issuer.

8.	Credits and loans whose remaining term to maturity exceeds 3 months and which are held in connection with the business conducted pursuant to Article 36-2 paragraph (4) subparagraph 1 item (i) of the Decree.

9.	Derivative assets as a result of OTC financial derivatives transactions whose remaining term to maturity is at least three months

(2) In case the assets under paragraph (1)1 and 2 fall under the following, the amount equivalent thereto shall be excluded from deducting items:

1.	Of the investment securities owned for the purpose other than equity investment, marketable securities;

2.	Bank deposits to be cashed within three months through rescission of contract;

3.	Assets to be offset against liabilities, or those reserved for redemption of liabilities;

4.	Assets deposited outside for the contingent liabilities or the guarantee of settlement;

5.	Accrued interest advance arising from the purchase of interest-bearing securities such as bonds;

6.	Assets already liquidated or to be liquidated; and

7.	In case collateral is provided, the amount, whichever is smaller, between such collateral value (referring to the amount obtained by subtracting market risk amount pursuant to Article 2-17 paragraph (1) from market value) and the asset value concerned.

(3) The amount of asset already liquidated or to be liquidated pursuant to the provisions under paragraph (2) subparagraph 6 shall be the amount which falls under any of the following subparagraphs.

1.	When a securities company concludes a borrowing contract with maturity of no less than 1 year which the execution of securities right is allowed only on the investment securities which are provided as collateral, and any claim on other properties of the company is not allowed, whichever is smaller between the value equivalent to the liabilities and the book value of the investment securities.

2.	In the case of real estate, the value which a securities company selected for each real estate.

a. When a securities company concludes a borrowing contract with maturity of no less than 1 year which the execution of securities right is allowed only on the real estate which is provided as collateral, and any claim on other properties of the company is not allowed, whichever is smaller between the value equivalent to the liabilities and the book value of the real estate.

b. The value equivalent to 70/100 of the publicly announced land price which the Government publicly announces or the appraised value evaluated by similar method within the scope of the 40/100 of the book value.

3.	The guarantee for rent or leasehold rights falling under any of the following subparagraphs(hereinafter referred as "the guarantee for rent")

a. When a securities company may cancel lease or rental contract within three months in accordance with that contract, the guarantee for rent.

b. When a securities company may transfer lease or rental contract into monthly rental contract within three months in accordance with the contract, the guarantee for rent.

§2-14. Adding Items

The adding items prescribed under Article 2-12 shall be the amount of liabilities, which falls under any of the following subparagraphs:

1.	Allowance for bad debts for current assets; (excluding allowance for losses accumulated on the substandard and below)

2.	Subordinated borrowings (including those borrowed through the issuance of bonds; the same hereinafter);

3.	Obligation under financing lease (deducting the charges for agreement rescission); and

4.	Gains on valuation of marketable securities by market price(excluding any profit reflected at the time of calculating the current net income)

§2-15. Subordinated Borrowings

(1) Subordinated borrowings to be added to the net capital pursuant to Article 2-l4 subparagraph 2 shall be those that satisfy the following requirements:

1.	In case of bankruptcy of a borrower, it should be clearly stated that such debts are to be repayable only when there is remaining property after redemption of all other debts;

2.	The remaining period from the borrowing date to the repayment date shall be no less than one year;

3.	There is an agreement that, in the case that the net capital ratio falls below 100%, such debts are not required to be re-paid on the due date under the contract;

4.	There are no agreements on the provision of collateral, offsetting, pre- payment, and liability guarantee, which are likely to pervert the nature of the subordinated borrowings.

However, debts from other securities companies shall not be added thereto and, in cases in which the remaining period to the principal redemption date is less than 1 year, the subordinated borrowings are to be deducted by 25/100 every quarter.

(2) When intending to obtain any subordinated borrowings, a securities company shall declare such fact in advance to the FSS Governor.

(3) Total subordinated borrowings to be added to the net capital shall not exceed 150/100 of net assets. However, these provisions shall not apply to the following subordinated borrowings:

1.	Those obtained with the prior approval of the FSS Governor; and

2.	Those already added to the net capital.

(4) Where applicable under any of the following subparagraphs, a securities company may service subordinated debts before maturity with the approval of the Governor (including cases where self issued subordinated bonds are acquired):

1.	Where the net working capital to risk weighted assets ratio after servicing subordinated debts is 200/100 or greater;

2.	Where requirements under the following subparagraphs are satisfied:

a. The net capital ratio as of the end of the latest fiscal year shall be 150/100 or greater

b. Substitution of the subordinated debts to be serviced for any capital supply, such as capital increase, that has a stronger nature of capital than the subordinated debts concerned, shall be explained and justified prior to redemption, and the substitution's amount shall be greater than the subordinated debts to be serviced. In this case, longer remaining term of maturity and superior financing conditions of subordinated debts than those of the subordinated debts concerned shall be deemed capital supply of a stronger capital nature.

c. There shall be a clause in subordinated debt contracts allowing for debtor to service debts before maturity with the approval of the Governor, which may be replaced by mutual agreement between the parties; and

d. Interest rates for the subordinated debts concerned shall be subject to adverse conditions as a result of changes in financial markets.

(5) A securities company intending to service subordinated debts before maturity pursuant to the provisions of paragraph (4) shall submit a request for approval in advance to the Governor by filing data certifying its compliance with the requirements as stipulated under paragraph (4), together its substitute financing plan. Where applicable under paragraph (4) subparagraph 1, however, substitute financing plan may be omitted.

(6) A securities company approved by the Governor pursuant to the provisions of paragraph (4) shall service subordinated debts after (or as soon as) the substitute financing business is completed. However, this shall not apply where the provisions of paragraph (4) subparagraph 1 are applicable.

Subsection 2.

Calculation of Gross Risk Amount by Standard Model

§2-16. Gross Risk Amount

(1) The gross risk amount of a securities company shall be the total amount mentioned in subparagraphs 1 through 4 :

1.	Market risk amount;

2.	Counter party risk amount;

3.	Fundamental risk amount; and

4.	Credit concentration risk amount;

(2) The gross risk amount of a securities company shall be computed by the method specified in this section. However, the determination of gross risk may vary as market risk may be computed by using internal models as stipulated in subsection 3 of this section.

§2-17. Market Risk Amount

The market risk amount under Article 2-16 paragraph (1) subparagraph 1 shall be the aggregate of the following subparagraphs.

1.	Market risk amount

2.	Interest rate risk amount

3.	Beneficiary certificate risk amount

4.	Foreign exchange risk amount

5.	Option risk amount

6.	Underwriting risk amount

(2) The market risk amount of derivatives shall be computed by the method under Article 2-18 through Article 2-22 after converting derivatives into the value of underlying assets. The specific computational method for the risk amount shall be set and approved by the FSS Governor.

§2-18. Calculation of Stock Risk Amount

(1) The stock risk amount under Article 2-17 paragraph (1) subparagraph 1 shall be computed based on the position in one of following subparagraphs:

1.	Marketable stocks, DRs, and other related items (including stock trading contracts)

2.	Convertible bonds (CB), bonds with warrants (BW), bonds with preemptive rights, and others approved by the FSS Governor that have similar price fluctuations with stocks

3.	Stock index futures or stock index options

4.	Derivatives with underlying assets that are related to subparagraphs 1-3.

(2) The risk amount on the position mentioned above in (1) shall be the aggregate of the specific risk amounts and the general market risk amounts after classifying positions for markets. However, the risk amounts for positions related to options between positions under paragraph (1)3 or (1)4, shall be calculated according to the method under Article 2-22.

1.	Specific risk amount: Value determined by multiplying the total stock position of a securities company with the risk multiplier according to liquidity and diversification standard as in the Annexed Table 6.

2.	General market risk amount: Value determined by multiplying the absolute value of the difference between the total net buying position and the total net selling position with 8/100. However, if the net buying and the net selling positions exist between stock markets in a single country, the risk amount will be reduced by the value of multiplying 8/100 with the smaller position between the net buying position and the net selling position.

(3) Despite provision (2), the risk amount of the stock index futures and portfolios as determined by the FSS Governor can be calculated as follows:

1.	Stock index futures position: Multiply 8/100 with the designated position

2.	Index portfolio position: Multiply 10/100 with the designated position

3.	Arbitrage transactions using stock index futures

a. For the same index, if a securities company assumes differing settlement months or a reverse position in another market: Multiply 2/100 with the smaller one between the positions with different settlement months and a reverse position in another market. However, with regard to the gap between the positions, the risk amount shall be computed according to the method mentioned in [Article 2-18 paragraph (3) subparagraph 1].

b. If a securities company conducts intentional arbitrage using stock index futures position and stock baskets based on the identical stock index: Risk amounts computed by multiplying 2/100 with the stock index futures position and the stock baskets position and adding up the computed risk amounts.

§2-19. Calculation of Interest Rate Risk Amount

(1) The interest risk amount shall be computed with respect to one of the positions in following subparagraphs:

1.	Floating rate bonds, CDs, corporate bonds, asset-backed securities and other securities of similar nature

2.	Convertible bonds, bond with warrants, and bonds with preemptive rights that have similar price fluctuations with bond that are approved by the Governor of the FSS.

3.	Interest rate derivatives with underlying assets that fall under Article 2-19 paragraph (1) subparagraphs1 or 2.

(2) The risk amount of the position under paragraph (1) shall be the sum of the specific risk and general market risk amounts in differing currencies as follows:

1.	Specific risk amount: value of multiplying the risk multiplier attached in the Annexed Table 7 with interest position in market value according to the issuer's creditworthiness or remaining term to maturity.

2.	General market risk amount: value computed by using the maturity method or the duration method as determined by the Governor of the FSS.

However, for derivatives positions, the risk amount of option-related positions shall be computed by the method specified under Article 2-22.

(3) In calculating the risk amount pursuant to paragraph (2), if the Governor acknowledges that the interest-related positions are incurring losses due to interest rate fluctuations, the positions may be offset.

§2-20. Calculation of the Risk Amount of Beneficiary Certificates

(1) Risks for beneficiary certificates pursuant to Article 2-17 paragraph (1) subparagraph 3 shall be calculated based upon one of the positions provided under the following subparagraphs:

1.	Beneficiary certificates held by securities company under the Securities Investment Trust Business Act; securities issued by securities investment company under the Securities Investment Trust Business Act; beneficiary certificates overseas and securities issued by investment company

2.	Beneficiary certificates sold by a securities company

(2) The risk amount of the beneficiary certificate referred to in paragraph (1) subparagraph 1 shall be computed through the method under Article 2-18, Article 2-19, Article 2-21, Article 2-22 or Article 2-24. Before the risk amount is computed, the risk multiplier referred to in the Annexed Table 8 should be applied to the beneficiary certificate or respective assets in the beneficiary certificate and converted into underlying asset positions.

(3) For the beneficiary certificates under paragraph (1)2, the risk multiplier in the Annexed Table 9 shall be applied to compute the risk amount of the beneficiary certificate .

§2-21. Calculation of Foreign Exchange Risk Amount

The exchange risk amount pursuant to Article 2-17 paragraph (1) subparagraph 4 shall be computed with regard to the positions of following subparagraphs:

1.	Monetary assets and liabilities in foreign currency

2.	Positions in futures, forward, or swap transactions to be settled or calculated in foreign currency

3.	Debt guarantees in foreign currency for which payment advances on debt are fully insured

4.	Monetary derivatives

(2) The risk amount of the positions under paragraph (1) shall be equal to the general market risk amount computed by one of following methods:

1.	According to the respective currencies, the net buying position and net selling position are determined and each position is converted into KRW by using the closing prices of related markets on the basis date.

2.	Net buying positions and net selling positions in differing foreign currencies as computed under paragraph (1) are aggregated respectively and converted into total net buying positions and total net selling positions. A securities company shall compute the risk amount of positions by multiplying 8/100 with the greater position between total net buying position and total net selling position

§2-22. Calculation of Option Risk Amount

(1) The option risk amount pursuant to Article 2-17 paragraph (1) subparagraph 5 shall be computed by either simple method or delta-plus method.

(2) The option risk amount by simple method shall be computed by following method. To use the simple method, the Governor shall determine the way of risk offsetting.

1.	Buying position: market value of the option; for listed options, however, the risk amount can be substituted with the value determined by multiplying risk multiplier of underlying assets with the market value of the underlying assets.

2.	Selling position: value determined by deducting out-of-the-money options from the value computed by multiplying the risk multiplier of underlying assets with the market value of underlying assets.

(3) For the option risk amount by delta-plus method, the option risk amount includes delta risk amount, gamma risk amount, and vega risk amount. The Governor shall determine the specific method to compute risk amount.

(4) The computation of option risk amount pursuant to paragraph (3) is confined to the case that the information on delta, gamma, and vega are provided in the markets. However, a securities company shall report that to the Governor in advance if it wishes to use the delta-plus method to compute the risk amount of options for which there is no specific information provided.

(5) If a securities company employs the delta-plus method to measure the risk amount of a certain option, it should continue to employ the method on a consistent basis. However, if it must adopt the simple method due to changes in risk management or other, it must first receive approval from the Governor to employ the simple method.

§2-23. Calculation of Underwriting Risk Amount

According to the method under the Annexed Table 1, the underwriting risk amount pursuant to Article 2-17 paragraph (1) subparagraph 6 shall be computed based upon the securities that a securities company makes an underwriting contract for, or the securities for which a securities company has to make a market.

§2-24. Calculation of Counter-Party Risk Amount

(1) Risks for counter party to transaction under Article 2-16 paragraph (1) subparagraph 2 shall be calculated based upon positions provided under the following subparagraphs.

1.	Bank deposits, deposits(excluding separate customer deposits made under trust approach; the same hereinafter in this Article), and call-loans

2.	Securities lending or borrowing transactions

3.	Repo or reverse Repo

4.	Margin loans for customers

5.	Futures, swaps, derivatives, etc.

6.	Payment or debt guarantees

7.	Loans, account receivables, and accrued income

8.	Securitized rent guarantee, leasehold rights

9.	Other monetary loans

10.	Accrued securities (unpaid to market value)

(2) The risk amount of positions under paragraph (1) shall be computed as follows.

1.	Risk amount shall be computed by multiplying 1.6/100 with call loans to financial institutions other than approved financial institutions pursuant to Article 2-8 subparagraph 5 item a, or by multiplying 3.2/100 with bank deposits and deposits.

2.	Risk amount of the positions under paragraph (1) subparagraphs 2 through 4 shall be computed by multiplying the risk multiplier of the respective counter-Parties mentioned in the Annexed Table 12 with credit conversion values in the Annexed Table 11. However, if the credit conversion value is negative, the risk amount shall not be required.

3.	To measure the risk amount of positions under paragraph (1) subparagraph 5, it is required first to obtain the credit conversion value by adding current replacement cost in market value unrealized profit(+) and loss(-) to the potential risk amount during the remaining term of the contract (the value of multiplying nominal principal with the credit conversion ratio stipulated in the Annexed Table 13 according to transactions and remaining term). Secondly, the credit conversion value shall be multiplied with the respective counter Party's risk multiplier mentioned in annexed Table 12 to determine the risk amount of position. However, the following subparagraphs shall be excluded from the calculation of counter-Party risk amount:

a.	Listed derivatives transactions that are marked to market

b.	Foreign exchange or related transactions within 14 days of the principal transaction period

4.	In the case that the credit conversion value is negative, the risk amount of positions shall be computed by multiplying the counter Party's risk multiplier stipulated in the Annexed Table 12 with the position mentioned in paragraph (1) subparagraph 6 or 9.

(3) For bonds referred to under paragraph (1) 1 through 9, which are overdue in settlement, and the position mentioned in (1)10, the risk amount shall be calculated by multiplying one of following risk multipliers in accordance with the processing period of number of overdue days with the value of the claim concerned (in the case of paragraph (1)2 to 5, credit conversion value; in case of Subparagraph 10, market value of accrued securities).

1.	0-15 processing days: 16/100

2.	16-30 processing days: 32/100

3.	31-60 processing days: 48/100 or deduction from net capital

4.	61 or more processing: deduction from net capital

However, if default of counter-Party's non-fulfillment is certain, the resulting losses may be deducted from the net capital.

(4) If a counter-Party or third Party provides collateral for the transaction referred to in paragraph (1)1, 5, or 10, a securities company may compute the risk amount by subtracting the collateral (value of subtracting market risk amount from collateral in market value) from the credit conversion value.

(5) If the third Party guarantees the counter-Party's obligation, a securities company may take the smaller amount between the counter-Parties and the third Party's risk amounts.

§2-25. Calculation of Fundamental Risk Amount

(1) The fundamental risk amount pursuant to Article 2-16 paragraph (1) subparagraph 3 shall be the greater amount among the following amounts:

1.	20/100 of the minimum capital determined officially in accordance with the types of businesses that a securities company conducts. In this case, businesses that a company engages in are determined on the basis of business activities currently being performed.

2.	The value equivalent to 25/100 of total costs to cover financial costs over financial income and ordinary expenses for the last 12 months including the month of basis date.

a. Ordinary expenses refer to the amount determined by subtracting depreciation, amortization, advertisement expenses, research and development, educational expenses, provisions for guarantee allowances, and the amortization of intangible assets, from general administrative costs.4.	Credit concentration risk amount;4.	Credit concentration risk amount;4.	Credit concentration risk amount;

b. Financial expenses refer to interest costs, and financial income includes interest income, dividends, and distribution income.

§2-26. Calculation of Credit Concentration Risk Amount

(1) Credit concentration risk amount pursuant to Article 2-16 paragraph (1) subparagraph 4 shall be computed when a securities company has positions exposed to counter-Party risks and specific risk of market risks (hereinafter referred to as "credit amount") in transactions with a single borrower or a single business group, and the concerned positions fall into one of following cases:

1.	Credit concentration risk amount: A securities company provides a single person with credit (excluding call-loans) in excess of 25/100 of net capital, or provides a single business group with credit (excluding call-loans) in excess of 30/100 of net capital.

2.	Stock holding concentration risk amount: When a securities company holds or performs short-selling of more than 5/100 of total stocks that a company issues.

3.	Call loan concentration risk amount: When call loans are in excess of the following amounts to a single borrower or business group:

a.	Call loan equivalent to 10/100 of net capital

b.	Call loan equivalent to 25/100 of total call loans made by the securities company

(2) The computational method for the credit concentration risk amount pursuant to (1) is as follows.

1.	Credit concentration risk amount shall be equal to the sum of following respective amounts. However, in computing the amount, if credit provided to a single Party is related to a. and b. simultaneously, the greater amount of the two shall be the credit concentration risk amount.

a. Credit concentration risk amount for a single Party: If credit to a single person reaches between 25/100 and 50/100 of the total net capital of a securities company, the credit concentration risk amount is 50/100 of gross risk amount of the credit. If credit to a single person exceeds 50/100 of a companies net capital, the risk amount shall be 100/100 of the gross risk amount of the credit.

b.	Credit concentration risk amount for a single business group: If credit to a single business group reaches between 30/100 and 60/100 of net capital of a securities company, the credit concentration risk amount is 50/100 of gross risk amount of the credit. If credit to a single business group exceeds 50/100 of a companies net capital, the risk amount shall be 100/100 of the gross risk amount of the credit.

2.	Stock concentration risk amount: If a securities company holds or engages in short-selling of between 5/100 and 25/100 of the total stocks issued by a single company, the stock concentration risk amount is 50/100 of the market risk amount of the stocks. If a securities company holds or engages in short-selling in excess of 50/100 of the stocks of a single company, the risk amount shall be 100/100 of the market risk amount of the stocks.

3.	Call loan concentration risk amount: The risk amount is equal to the value of multiplying 8/100 with the call loan amount.

(3) A securities company, notwithstanding provisions under paragraphs (1) and (2), may not compute the credit concentration risk amount pursuant to paragraphs (1) and (2) until three months after the day on which one of following occurs:

1.	Acquisition of securities for underwriting

2.	Guarantee on conversion issuance of guaranteed bonds

3.	Acquisition of securities to make market

4.	Acquisition of securities for the purpose of exercising rights.

(4) In applying paragraphs (1) and (2), the government, self-regulatory organizations, international organizations, and approved financial institutions pursuant to Article 2-8 subparagraph 5 item a are excluded from the scope of a single person. Approved financial institutions, pursuant to Article 2-8 subparagraph 5 item a, are also excluded from the scope of a single business group mentioned in Article 2 subparagraph 2 of the Fair Trade Act.

□ 2-26-2. Calculation of Total Risk Amount in OTC Financial Derivatives	Transaction

(1) Total risk amount of OTC financial derivatives transactions pursuant to Article 84-28 paragraph (3) of the Decree shall be the total sum of the amounts provided under Article 2-16 paragraph (1) subparagraphs 1, 2 and 4.

(2) Market risk amount under paragraph (1) shall be calculated based upon positions provided under the following, notwithstanding the provisions of Article 2-17.

1.	OTC financial derivatives

2.	Underlying assets and OTC financial derivatives in risk hedging relation to OTC financial derivatives under paragraph (1)

(3) Securities companies conducting OTC financial derivatives transaction business (including securities companies conducting OTC financial derivatives transaction business pursuant to other relevant statutes; the same hereinafter) may calculate option risks in accordance with scenario methodology stipulated by the Governor, notwithstanding the provisions of Article 2-22; provided, however, that securities companies offering sell option shall calculate option risks in accordance with delta plus or scenario method.

(4) Where securities companies conducting OTC financial derivatives transaction business intend to calculate risk amounts by employing delta plus method with respect to options about which information on delta, gamma, and vega is not provided in the listed market, they may do so, notwithstanding the provisions of Article 2-22 paragraph (4).

Subsection 3.

Risk Amount Computed under Internal Model

§2-27. Calculation of Market Risk Amount under Internal Model

(1) A securities company intending to compute market risk amount through internal model shall satisfy the requirements determined in this subsection and obtain approval in accordance with the procedures determined by the Governor.

(2) The internal model shall be designed to fully cover risk factors (such as stock risk, interest risk, and exchange risk) in order to measure market risk amount for the designated position of the securities company.

(3) The market risk amount under the internal model shall be the greater amount among the following subparagraphs. However, in the case that a securities company does not employ an internal model in computing specific risk amount, the standard method should be employed for the designated position in computing the specific risk amount, which shall be added to the market risk amount.

1.	Previous business day's VaR

2.	Average of the daily VaR of the preceding 60 business day□(3+ ). However, "(additional multiplication factor)" shall be determined by the securities company in consideration of back-testing results pursuant to Article 2-29 and the requirements on internal models stipulated in this section.

§2-28. Internal Model Requirements

(1) To compute market risk amount by using an internal model, a securities company must demonstrate a soundly operating risk management system, and shall satisfy qualitative requirements described in the Annexed Table 14.

(2) The VaR under the internal model shall satisfy quantitative requirements in the Annexed Table 14.

(3) To compute specific risk amount by using an internal model, a securities company shall satisfy all of the requirements in the Annexed Table 14. However, if it cannot satisfy some of the additional requirements in the Annexed Table 14, the company shall employ the method the Governor determines to compute risk amounts, and this shall be added to the risk amount calculated in accordance with Article 2-27 paragraph (3).

§2-29 Back-Testing of Internal Model

(1) A securities company employing an internal model to compute risk amount shall keep and maintain the records (hereinafter, "back-testing results"), which include information on daily actual net losses, VaR and the supposed net losses computed on the condition that the closing position of previous day does not change. The information should show that the company has compared its VaR every day since adopting the internal model, with its daily actual net losses and expected net losses, respectively.

(2) One year after a securities company introduces and implements an internal model, additional multiplication of Article 2-27 paragraph (3) shall be applied and changed on a quarterly basis in accordance with the method stipulated in the annexed Table 15, computing how many times expected net losses exceed the daily VaR according to (1). However, according to the back-testing results, the Governor may take measures to impose or change the multiplication.

(3) The Governor may request that improvements be made to internal models or demand that the standard method be used at securities companies that fall into the class of "cautionary" or "inappropriate" as stipulated in the Annexed Table 15.

(4) The Governor determines the methods of back-testing for the internal model of a securities company by which the company computes specific risk amounts.

§2-30. Eclectic Use of Internal Model and Standard Method

(1) A securities company that employs the internal model shall not employ the standard method at the same time to compute market risk amounts. However, if a company must use the standard method, it is required to receive prior approval from the Governor to use the method to compute market risk amount.

(2) A securities company shall select to use either internal model or standard method according to risk factor pursuant to OTC financial derivatives transaction or the provisions of Article 2-27 paragraph (2).

(3) A securities company that employs the internal model can rule out some positions or new products being regarded as less important in computing the market risk amount. However, it shall compute the market risk amounts of the excluded positions and commodities by the standard method.

(4) The market risk amounts of a securities company that uses both the standard method and internal model simultaneously shall be equal to the sum of market risk amounts computed by the standard method and internal model, respectively.

Section 3.

Management Performance Evaluation and Prompt Corrective Action

Subsection 1.

Management Performance Evaluation

§2-31. Management Performance Evaluation

(1) The Governor shall comprehensively and systematically analyze, evaluate (hereinafter, "management performance evaluation"), and supervise the status of the property and affairs of a securities company in order to judge the soundness in their management and finance.

(2) The management performance evaluation shall be implemented through examination and the management performance of the securities companies subject to evaluation shall be evaluated by the following categories, and the comprehensive evaluation shall be implemented taking into consideration the result of such categorical evaluation :

1.	Capital adequacy;

2.	Soundness of assets and liabilities;

3.	Risk management; and

4.	Internal control

(3) During the period other than examination, the evaluation shall be implemented only for the items whose quantitative evaluation is possible, from among those mentioned in paragraph (2). Such evaluation shall be implemented, in principle, every quarter; however, it may be implemented occasionally when it is deemed necessary by the Governor.

(4) The head offices of securities companies shall be subject to management evaluation, and the ratings of evaluation shall be classified into five grades; the 1st grade(excellent), the 2nd grade (good), the 3rd grade (mediocre), the 4th grade (weak), and 5th grade (risky).

(5) The Governor may reflect the results of the management performance evaluation of securities companies in his supervisory and examining functions.

(6) Detailed matters of management evaluation pursuant to the provisions of paragraph (2) shall be determined by the Governor. Management performance of companies subject to consolidation may be considered for the securities company preparing consolidated financial statements pursuant to the provisions of the Company Reorganization Act.

(7) This Article shall not apply in respect of the Inter-Dealer Brokers and ESBCs.

Subsection 2.

Prompt Corrective Action

§2-32. Management Improvement Recommendation

(1) The Governor shall, in case any securities company falls into one of the following cases, recommend such securities company to take necessary measures:

1.	Cases where the net capital ratio frills short of 150/100;

2.	Cases where, as a result of the management evaluation pursuant to Article 2-22, the overall rating is third grade (less than satisfactory) or higher but the rating of capital adequacy is fourth grade (deficient) or lower; and

3.	Cases where such securities company is certain to fall under the standard model in subparagraph 1 or 2 due to a big financial scandal or occurrence of non performing claims.

(2) The necessary measures stipulated under paragraph (1) correspond to those in the following, in part or in whole:

1.	Improvement of manpower and organization management;

2.	Curtailment of expenditures;

3.	Efficient management of business offices;

4.	Disposition of non-performing assets;

5.	Restriction on any act of causing a decrease in net capital;

6.	Restriction on advancement into a new business; and

7.	Increase or reduction of capital stock.

(3) Any act causing a decrease in the net capital as stipulated under paragraph (2) subparagraph 5 corresponds to those in the following, in Part or in whole:

1.	Acquisition of real estate;

2.	Occurrence of claims, etc, on persons having a special relationship;

3.	Equity investment in other corporations;

4.	Acquisition of investment assets not for trading;

5.	Acquisition of treasury stock;

6.	Cash dividends; and

7.	Remittance of profits to the head office and overseas deposit of securities by domestic branches of a foreign securities company.

(4) Any securities company shall, when its net capital ratio falls short of 150/100. report such ratio to the Governor, without delay.

(5) Any securities company failing under the provisions of paragraph (4) is required to report every month Its net capital ratio by the both day of the following month to the Governor until such ratio leaches 150/100 or more; when its net capital decreases by 10/100 or more of the most-recently reported net capital or its gross risk amount increases by 10/100 or more of the most-recently reported gross risk amount, such securities company shall report to the Governor such details, without any delay.

§2-33. Management Improvement Requirement

(1) The FSC shall, when any securities company falls under any of the following subparagraphs, require such securities company to perform the necessary measures :

1.	Cases where the net capital ratio falls short of 120/100;

2.	Cases where the overall rating is fourth grade (deficient) or lower as a result of management evaluation pursuant to Article 2-22; and

3.	Cases where such securities company is certain to fall under the standards mentioned in subparagraph 1 or 2 due to a big financial scandal or occurrence of non performing claims.

(2) Necessary measures under paragraph (1) refer to those in the following, in part or in whole:

1.	Restrictions on holding high risk assets and disposition of assets;

2.	Closure and consolidation of business offices, or restriction on opening thereof;

3.	Curtailment of organization;

4.	Disposal of subsidiaries;

5.	Demand for the replacement of officers;

6.	Suspension of business in Part;

7.	Planning of a merger; takeover by a third Party; or assignment of business, in whole or in Part; inclusion (including the inclusion in any financial holding company under the Financial Holding Company Act (hereinafter, "financial holding company") after establishing such financial holding company solely or jointly with other financial institutions; hereinafter as such) as a subsidiary in a financial holding company; and

8.	Measures mentioned under Article 2-23 paragraph (2).

§2-34. Management Improvement Order

(1) The FSC shall, in case any securities company falls under any of the following subparagraphs, order that such securities company perform the necessary measures:

1.	Cases where the net capital ratio falls short of 100/100, or

2.	Cases where such securities company falls under the ailing financial institution as prescribed in Article 2/3 of the Restructuring Act.

(2) Necessary measures as stipulated under paragraph (1) refer to those in the following, in part or in whole :

1.	Retirement of the stock, in Part or in whole;

2.	Suspension of business execution by officers and appointment of administrator;

3.	Mergers or inclusion as a subsidiary in a financial holding company;

4.	Assignment of business, in whole or in Part;

5.	Take-over of such securities company by a third Party;

6.	Suspension of business up to six months;

7.	Transfer of contracts, in whole or in Part; and

8.	Measures mentioned in Article 2-33 paragraph (2).

(3) Of the measures prescribed under paragraph (2), those of suspension or assignment of business in whole, transfer of contracts in whole, and retirement of the stock in whole shall be limited only to the case where any securities company falls under any of the following subparagraphs:

1.	Cases where such securities company falls under the provisions of paragraph (1) subparagraph 1, and it may significantly be detrimental to sound credit order or the right and interest of investors; or

2.	Cases falling under the provisions of paragraph (1) subparagraph 2

§2-35. Postponement of Prompt Corrective Actions

(1) The Governor may postpone a prompt corrective action for a specified period of time, when such securities company, even though it falls under the standards stipulated under Article 2-32(1), is certain not to have fallen, or is judged not to fall in a short period of time, under such standards through the increase of its capital or sale of its assets and so on.

(2) The FSC may postpone a prompt corrective action for a specified period of time, when such securities company, even though it falls under the standards stipulated under Article 2-33(1) or Article 2-34(1), is certain not to have fallen, of is judged not to fall in a short period of time under such standards through the increase of its capital or sale of its assets and so on.

§2-36. Submission and Evaluation of Management Improvement Plan, etc.

(1) Any securities company which has received management improvement recommendation, requirement or order pursuant to Article 2-32 to Article 2-33 shall file a plan reflecting the contents of such improvement (hereinafter referred to as "management improvement plan") with the Governor within two months from the date of such measures, to be determined by the Authorities.

(2) Within one month from the filing date, the Governor shall decide as to whether to approve the management improvement plan filed by any securities company which has received management improvement recommendation pursuant to Article 2-32, and the FSC shall do the same for such plan filed by any securities company which has received the management improvement requirement or order pursuant to Article 2-33 and Article 2-34, respectively.

(3) For the issuance of a management improvement recommendation, requirement, or order pursuant to the provisions of Article 2-32 through Article 2-34, the Governor shall receive a review of the Management Assessment Committee comprised of outside professionals in advance prior to making an approval decision pursuant to the provisions under paragraph (2). This, however, shall not apply in the event of emergency or deliberation deemed unnecessary by the Governor.

(4) The Governor shall, when he deems that the plan filed by any securities company which has received management improvement recommendation pursuant to Article 2-32 paragraph (1) should not be reasonable, disapprove such plan. In this case, the FSC shall require that such company should implement the measures under Article 2-33 paragraph (2), in Part or in whole, within a specified period.

(5) The FSC shall, when it deems that the plan filed by any securities company which has received management improvement requirement pursuant to Article 2-33 paragraph (1) should not be reasonable, disapprove such plan, and require that such company should implement the measures mentioned in Article 2-33 paragraph (2), in Part or in whole; and when it deems that the management improvement plan reflecting the contents of such requirement should not be reasonable, it disapproves such plan and order such company to implement such measures as prescribed under Article 2-34 paragraph (2), in Part or in whole.

(6) The FSC shall, when it deems that the management improvement plan filed by any securities company which has received management improvement order pursuant to Article 2-34 paragraph (1) should not be reasonable, disapprove such plan, and may take measures under Article 2-39 paragraph (3), in Part or in whole.

(7) The Governor shall determine specific matters pertaining to the organization and operation of the Management Assessment Committee under paragraph (3).

§2-37. Implementation Period of Management Improvement Plan

(1) The period for implementing the management improvement plan of any securities company which has received a management improvement recommendation pursuant to Article 2-32 shall be within six months from the approval date of such plan.

(2) The period for implementing a management improvement plan of any securities company which has received management improvement requirement pursuant to Article 2-33 shall be within one year from the approval date of such plan, However, in case any securities company which has received a management improvement recommendation pursuant to Article 2-32 receives management improvement requirement during the period for Implementing such plan, such period shall not exceed one year from the date on which the management improvement plan for such recommendation is approved.

(3) The period for implementing a management improvement plan of any securities Company which has received a management improvement order pursuant to Article 2-34 shall be determined by the FSC.

(4) In case any securities company which has received a management improvement recommendation, requirement or order has substantially improved its management conditions through an early achievement of the important matters included in its management improvement plan such as increase of capital stock or stoles of its assets, etc., the person authorized to take measures may lighten the contents of the initial prompt corrective actions or exempt the performance thereof.

(5) The person authorized to take measures shall, when recognizing that any securities company which has received management improvement recommendation, requirement, or order has sufficiently improved its management conditions when the implementation period of such plan is expired, notify such securities company of the completion of such measures; in case the management condition of such securities company falls under the requirements under Article 2-32 paragraph (1), Article 2-33 paragraph (1), or Article 2-34 paragraph (1) due to the failure in management normalization, he shall take additional measures such as management improvement recommendation, requirement, or order in accordance with the provisions of the same articles, respectively.

§2-38. Report on Implementation of Management Improvement Plan and Request for Correction

(1) Any securities company which has obtained the approval for the management improvement plan pursuant to Article 2-36 paragraph (2) is required to file with the Governor the quarterly implementation result of such plan at the latest of 10 days after the end of each quarter.

(2) The Governor may, when the implementation result of any management plan is behind the target or it deems that it is difficult to implement such plan due to the changes in environment, such as amendment of relevant system, take necessary measures, such as request for modification of such plan, demand for performance within a specified period of time. However, the Governor shall, when requesting any modification or demanding any performance against any securities company which has received the management improvement requirement or order, report such fact to the FSC in advance.

(3) Article 2-36 paragraphs (2) to (6) shall apply mutatis mutandis to the case where any securities company has modified and filed the material Part of its management improvement plan in accordance with the provisions under paragraph (2).

(4) Any securities company which has implemented the management improvement plan pursuant to Article 2-37 paragraphs (1) to (3) is required to file with the Governor the implementation result of such plan, without delay.

§2-39. Measures against Non-Fulfillment of Management Improvement Plan

(1) When the Governor deems that any securities company which has received a management improvement recommendation pursuant to Article 2-32 paragraph (1) fails to sincerely implement the management improvement plan, the FSC shall require that such company should implement the measures mentioned In Article 2-22 paragraph (2), in Part or in whole.

(2) The Governor shall, when any securities company which has received a management improvement requirement pursuant to Article 2-33 paragraph (1) fails to implement the material Part of the management improvement plan, demand the implementation within a specific period of time; the FSC shall, when it deems that the management of any securities company which was ordered to implement management improvement plan will not be normalized because such company fails to, or will be unable to, implement the material Part of such plan, order such company to take the measures under Article 2-34 paragraph (2), in whole or in Part

(3) The FSC may, when it deems that the management of any securities company which has received a management improvement order pursuant to Article 2-34 paragraph (1) is not normalized because such company fails to implement the material Part of the management improvement plan within the period pursuant to Article 2-37, take the following measures against such company, in whole or in part:

1.	Measures prescribed under Article 2-34 paragraph (2);

2.	Revocation of permission granted to such securities company;

3.	Recommendation on dismissal of officers, and

4.	Other measures necessary for the protection of investors.

§2-40. Emergency Measures

(1) Notwithstanding the provisions under Article 2-32 to Article 2-34, the FSC may take necessary measures when it deems that it is difficult for any securities company to normally manage its business because the financial condition thereof is significantly aggravated or that the continuation of business thereof may lead to the detriment of the protection of investors or stability of the securities market due to any of the following reasons.

1.	Cases where issued notes or checks are dishonored or the transactions with banks are suspended or prohibited;

2.	Cases where deposit payment insolvency occurs because of the drastic worsening of liquidity position due to customers' bank run; or

3,	Cases where it is impossible and difficult to conduct normal business due to the sudden occurrence of suspension of work or suspension of business.

(2) Necessary measures as prescribed under paragraph (1) correspond to those under the following subparagraphs.

1.	Suspension of payment of customers' deposits, in part or in whole;

2.	Prohibition of repayment of debts;

3.	Measures mentioned in each subparagraph of Article 2-34 paragraph (2); and

4.	Other measures necessary for the protection of investors.

§2-41. Concluding Management Improvement Agreement

The Governor may, when any securities company falls under any of the following cases, have such securities company file a plan or an agreement for the improvement thereof, or conclude a management improvement agreement with such securities company. However, these provisions shall not apply to any securities company which has received a management improvement recommendation, requirement or order pursuant to Article 2-32 to Article 2-34 :

1.	Cases where the net capital ratio of such company is expected to fall, or temporarily falls, short of 150/100 due to the occurrence of a big loss or increase of risks, etc, ;

2.	Cases where it is judged that such company has a weak Part in management as a result of an examination or a management evaluation pursuant to Article 2-31; or

3.	Cases where the application of Article 2-11 and Article 2-32 to Article 2-34 to any converted securities company pursuant to the provisions of Chapter 3 of this Part is waived in accordance with Article 2-52.

Section 4.

Valuation of Assets and Liabilities and Calculation of

Ratio of Assets to Liabilities

§2-42. Valuation Methods of Assets and Liabilities

(1) The assets and liabilities of any securities company pursuant to Article 2 subparagraph 3 of the Restructuring Act shall be valued and calculated on the basis of real value.

(2) The scope of assets and liabilities pursuant to the provisions under paragraph (1) and the calculation method of real value shall comply with the Annexed Table 12.

§2-43. Ratio of Assets to Liabilities

(1) "Ratio of assets to liabilities" means a percentage ratio of a securities company's assets to its liabilities.

(2) Every securities company shall calculate its ratio of assets to liabilities as of the end of each quarter.

Section 5.

Foreign Exchange Soundness

§2-44. Ratio of Foreign Exchange Liquidity

(1) Pursuant to the provisions of Article 21 subparagraph 4 of the Foreign Exchange Transactions Act and its Decree, securities company conducting foreign exchange business shall classify and manage its assets and liabilities in foreign currency by each remaining maturity date, and maintain the ratios as stipulated as follows:

1.	The Ratio of assets with remaining maturity of less than three months to liabilities with remaining maturity of less than three months : 80/100 or above; and

2.	The ratio of mismatch in maturities of assets and liabilities in foreign currency.

a. Ratio of assets exceeding liabilities in the event of remaining maturity of less than seven days; 0/100 or above

b. Ratio of debts exceeding assets being in the event of remaining maturity of less than one month : 10/100 or below

(2) The method of classification of remaining maturity, the scope of assets and liabilities and the method of ratio calculation under paragraph (1) shall be determined by the Governor.

(3) Notwithstanding the provisions of paragraph (1), these provisions shall not apply to any securities company conducting foreign exchange business, whose foreign currency liabilities to total assets ratio is less than 1/100.

§2-44-2 Classification of Foreign Exchange Position

(1) The overall position by each foreign currency for a securities company conducting foreign exchange business shall be classified as follows.

1. Foreign currency over-bought position refers to the differences resulting from where the total remaining spot and futures assets balance exceeds the total remaining spot and futures liabilities balance.

2. Foreign currency over-sold position refers to the differences resulting from where the total remaining spot and futures liabilities balance exceeds the total remaining spot and futures assets balance.

(2) The foreign exchange position of a securities company conducting foreign exchange business shall be whichever the larger of the total amount of overall over-bought position and the total of overall over-sold position for each foreign currency.

(3) The Governor shall determine the scope for foreign currency assets and liabilities under paragraph (1).

§2-44-3 Ceiling on Foreign Exchange Position

(1) The ceiling on foreign exchange position of a securities company conducting foreign exchange business shall be as follows.

1.	Foreign currency over-bought position: 20/100 of equity capital as of the end of preceding month on the basis of the total amount of overall over-bought position for each foreign currency.

2.	Foreign currency over-sold position: 20/100 of equity capital as of the end of preceding month on the basis of the total amount of overall over-sold position for each foreign currency.

(2) The equity capital under paragraph (1) shall be the same as that under each of the following subparagraphs, converted into the U.S. dollars based upon the exchange rate determined by the Governor.

1.	A domestic securities company: the total amount of paid-in capital ·reserve and earned surplus carried forward to the following term.

2.	A domestic branch of a foreign securities company: the total amount of business fund ·reserve and earned surplus carried forward to the following term.

§2-44-4 Permission of Separate Ceiling on Foreign Exchange Position

(1) The Governor may permit separate ceilings other than those prescribed under Article 2-44-3 to the domestic branches of foreign securities companies who wants permission of separate ceiling on foreign currency purchased to hedge foreign exchange risks for earned surplus carried forward to the following term, and also to securities companies conducting foreign exchange business deemed in need of excess over ceiling.

(2) Permission period for separate ceiling under paragraph (1) shall be less than one year, and other specific matters on permission of separate ceiling shall be determined by the Governor.

§2-44-5 Management of Ceiling on Foreign Exchange Position

(1) A securities company conducting foreign exchange business shall confirm the compliance status on ceiling for foreign exchange position based upon remaining balance for every business day; provided, however, for the foreign exchange position for Saturdays and holidays of the foreign exchange market in New York, confirmation shall be made based upon the average remaining balance with the addition of that from the following business day.

(2) A securities company conducting foreign exchange business, which fails to observe ceiling on foreign exchange position, shall report to the Governor within three business days from the date of failure.

(3) A securities company conducting foreign exchange business shall report daily status of foreign exchange position to the Governor on a monthly basis in accordance with the stipulations of the Governor.

(4) The Governor may require a securities company conducting foreign exchange business to submit evidentiary data or make books and documents available for inspection for the purposes of ceiling management.

§2-44-6 Exclusion from Management of Ceiling on Foreign Exchange Position

Foreign exchange position resulting from structural elements of a securities company conducting foreign exchange business shall be excluded from ceiling management where applicable under any one of the following subparagraphs.

1.	Foreign currency purchased for hedging foreign exchange risks of capital or business funds

2.	Foreign currency purchased and separately recognized for domestic branch of a foreign securities company to hedge foreign exchange risks of earned surplus carried forward to the following term

§2-45. Sanctions for Failure to Achieve Foreign Currency Liquidity

(1) In the event a securities company conducting foreign exchange business fails to achieve and maintain the ratios prescribed under Article 2-44 twice or less during the past one year period (and three times or less during the past one year period with respect to the ratios provided under Article 2-44 paragraph (1) subparagraph 2 item a), it shall submit an explanatory statement and recovery plan to the Governor in accordance with the stipulations of the Governor.

(2) In the event a securities company conducting foreign exchange business fails to achieve and maintain the ratios prescribed under Article 2-44 three times during the past one year period, ascended ratios under the following subparagraphs shall be applied notwithstanding Article 2-44.

1.	Ratio provided under Article 2-44 paragraph (1) subparagraph 1 : 85/100 or above

2.	Ratio provided under Article 2-44 paragraph (1) subparagraph 2 item b : 5/100 or below

(3) Where a securities company conducting foreign exchange business becomes applicable under the following subparagraphs, it shall suspend new borrowings in foreign currency with maturity of less than three months (except the Call Money with maturity of less than 30 days) until it achieves the ratios under the following subparagraphs.

1.	Failure to achieve and maintain the ratios provided under paragraph (2) subparagraph 1 or Article 2-44 paragraph (1) subparagraph 1 at least four times during the past one year period : 85/100 or above.

2.	Failure to achieve and maintain the ratios provided under Article 2-44 paragraph (1) subparagraph 2 item a at least four times during the past one year period : 5/100 or above.

3.	Failure to achieve and maintain the ratios provided under paragraph (2) subparagraph 1 or Article 2-44 paragraph (1) subparagraph 2 item b at least four times during the past one year period : 5/100 or below.

(4) Even where sanctions are applicable under paragraph (2) or (3), where inextricable due to economic and financial circumstances domestic and abroad, the Governor may recommend exemption, suspension or removal of sanctions in effect to the FSC; provided that, for exemption, sanction subject to exemption shall not be counted toward the number of violation.

(5) In the event a securities company conducting foreign exchange business fails to achieve and maintain the ratios provided under Articles 2-44 at least twice during the past one year period, the Governor may take actions necessary to the company such as shortening the length of reporting cycle provided under Article 2-68.

§2-45-2. Sanctions against Violations of the Ceiling on Foreign Exchange	Position

(1) The Governor may impose a sanction according to the following subparagraphs in the event securities companies conducting foreign exchange business violate the ceiling on the foreign currency position as a result of confirmation by Article 2-44-5 paragraph (1)

1.	When violating once within the last one year from the date of violation: warning

2.	When violating twice within the last one year from the date of violation: reduction of the daily average violating amounts from the ceiling per day multiplied by the number of days violating beyond the foreign currency position.

(2) A securities company conducting foreign exchange business shall be subject to double-reductions from the ceiling pursuant to paragraph (1) subparagraph 2 when it is applicable under any one of the following subparagraphs.

1.	When violating three times or more within the last one year from the date of ceiling violation;

2.	When committing the violation on purpose; and

3.	When reporting of matters under Article 2-44-5 paragraph (2) has not been made within three working days from the first date of violation.

(3) Where causes of excess over ceiling such as reduction of equity capital and etc. are recognized inextricable in the course of issuing sanctions under paragraphs (1) and (2), the Governor may exempt, suspend, or remove the sanction concerned. Where exemption of sanction is granted, the sanction concerned shall not be counted toward the number of violation.

(4) Where a securities company conducting foreign exchange business has not performed reporting duty or has made a false report, the Governor may take such actions as issuing a warning, correction order, or reduction of ceiling on foreign exchange position for a specified term.

§2-46. Status Report on Sanctions

When taking any disciplinary action against any securities company conducting foreign exchange business in violation of Articles 2-45 and 2-45-2, the Governor shall report to the FSC within one month from the end of each quarter.

Section 6.

Internal Control of Risks

§2-47. Preparation of Risk Management Guidelines

(1) Every securities company shall prepare guidelines for the management of financial risks (hereinafter referred to as "risk management guidelines").

(2) The risk management guidelines shall include the information on the level of the net capital ratio and the ratio of assets to liabilities (including a specified range of variation); the contents and degree of risks of operation assets; the method of asset management; the criteria of high risk assets and ceiling on their operation; effect of asset management; internal reporting and approval system; basic matters on internal disciplinary actions against violation and its procedures; composition of risk management organization and the operation thereof; and other necessary matters.

(3) Any securities company shall, when it has formulated its risk management guidelines, report such fact to the Governor; the Governor may, when deemed necessary, request such securities company to improve such guidelines.

§2-48. Internal Control of Foreign Exchange Business Handling Securities Company

(1) Every securities company conducting foreign exchange business shall, in accordance with Article 21 subparagraph 6 of the Enforcement Decree of the Foreign Exchange Transactions Act, formulate and administrate internal control standards by type of risks involved in foreign exchange transactions, such as country risk, large credit risk, derivatives transaction risk, and market risk.

(2) Every foreign exchange business handling securities company shall, when intending to formulate or modify its control standards pursuant to the provisions under paragraph (1) or to execute any foreign exchange transactions in excess of such standards, pass through the decision by its risk management organization.

§2-49. Keeping Records on Off-Balance-Sheet Transactions

Every securities company shall prepare and maintain the record (including contracts for the transactions and the documents attached thereto; hereinafter referred to as "off- balance-sheet transaction record") on the transactions of the derivative products such as futures, forwards, options and swaps; guarantees on debts; and other transactions which are not included in the financial statements (hereinafter referred to as "off-balance-sheet transaction") on an accrual basis.

Chapter 3.

Financial Soundness of Acquiring or Converting Securities Company

Section 1.

General Provisions

§2-50. Purpose, etc.

(1) The purpose of the provisions of this Chapter is to prescribe the matters concerning the temporary waiving, etc, of the application of the FSC regulations and relevant enforcement rules thereof (hereinafter referred to as "the regulations, etc." in this Chapter) in favor of acquiring or converted securities companies pursuant to Article 54 of the Act, Article 3 of the Law No, 6176, Article 37 of the Decree, Article 10 of the Restructuring Act, so as to achieve efficient restructuring of the securities industry and to attain sound management of securities companies.

(2) The terms used in this Chapter shall be same as defined in the following. However, those not defined in this Regulation shall have the same meanings given to them in the relevant statutes:

1.	The term "converted securities company" refers to any securities company in the case where any investment trust company under the Securities Investment Trust Business Act is converted to a securities company in accordance with the Restructuring Act.

2.	The term "conversion date" refers to the date of registration of the Al concerning the alteration of business pursuant to the Restructuring Act.

3.	The term "acquiring securities company" refers to a securities company which has acquired a merchant banking corporation pursuant to the Merchant Banking Corporation Act (hereinafter referred to as "the Merchant banking Act"), with the authorization for merger pursuant to the provisions of the Restructuring Act.

4.	The term "acquisition date" refers to the date of acquisition as prescribed in Article 527-6 of the Commercial Code.

5.	The term "credit-related assets" refers to the credit extension pursuant to Article 2 subparagraph 4 of the Merchant Banking Act. However, other receivables and fiduciary loans which are related to the securities business and advances for customers and guarantee on bonds before the merger are excluded.

6.	The term "merchant banking business" refers to the business of a merchant banking corporation concurrently engaged by an acquiring securities company, which is authorized by the FSC.

7.	The term "merchant bank assets/liabilities table" refers to the current status of assets and liabilities related to a merged merchant banking corporation.

Section 2.

Converted Securities Company

§2-51. Handling of Trust-Type Securities Savings

Any converted securities company engaging in the trust-type securities savings business shall calculate its net capital ratio in such manner as stipulated in Section 2 of Chapter 2 of this Part, assuming that the assets held in trust-type securities savings account are company assets and the savings amount in such account is a company liability.

§2-52. Suspension of Application

(1) Article 2-11 and Article 2-32 through Article 2-34 shall not apply to every converted securities company for three years and six months from the date of conversion (hereinafter, "suspension period"). The FSC may, however, additionally extend the suspension period by specifying a period not exceeding two years for any converted securities company when the FSC deems that such extension is necessary for smooth financial restructuring.

(2) Notwithstanding the provisions under paragraph (1), in case any converted securities company which has concluded a management improvement agreement pursuant to Article 2-41 fails to faithfully fulfill any material contents of such agreement or it is judged that the substantial management improvement may not be achieved during the suspension period pursuant to the provisions under paragraph (1), Article 2-11 and Article 2-32 through Article 2-34 shall apply mutatis mutandis thereto.

(3) When applying Article 2-15 paragraph (3) to any converted securities company during the suspension period, the capital stock shall be deemed the net assets in the case where the shareholders' equity is smaller than the capital stock.

Section 3.

Acquiring Securities Companies

§2-53. Exceptions to the Calculation of Shareholders' Equity

"Shareholders' equity" as used in applying the Merchant Banking Act, its Decree, the Regulation on Supervision of Merchant Banking Corporations (hereinafter referred to as "the Merchant Banking Regulation in this Section), and the Enforcement Rules of Merchant Banking Regulation (hereinafter, "the Merchant Banking Rules") to the merchant banking business conducted by any acquiring securities company, shall be the amount to be calculated in such manner as prescribed under Article 2 of the Merchant Banking Act, on the basis of the financial statements of the fiscal year immediately preceding the acquisition date of an acquired merchant banking corporation.

§2-54. Credit-Related Assets

The Regulation on Supervision of Merchant Banking Business shall apply to the management of credit-related assets of every acquiring securities company.

§2-55. Accounting

The accounting of the merchant banking business of any acquiring securities company shall be treated distinct from that of the securities business; the accounting titles and methods shall comply with the Accounting Procedure for Merchant Banking Industry, the Regulation on Supervision of Merchant Banking Business, and the Enforcement Rules for Supervision of Merchant Banking Business.

§2-56. Merchant Bank Assets and Liabilities Table

(1) Any acquiring securities company shall file the merchant bank assets and liabilities table, together with the business reports pursuant to Article 2-67 paragraph (4).

(2) The assets and liabilities in the merchant bank assets and liabilities table shall be calculated under the following standards:

1.	Any increase or decrease after such acquisition in credit-related assets and deposits received from customers in relation to the merchant banking business, from among the asset and liability items on the basis of the balance sheet of an acquired merchant banking corporation as of the date of acquisition, shall be included in the book; and

2.	Any decrease in the items, except the assets and liabilities pursuant to the provisions of subparagraph 1 shall be included in the book.

§2-57. Classification of Asset Soundness

The classification of asset soundness for the credit-related assets of an acquiring securities company shall comply with the provisions of the Regulation on Supervision of Merchant Banking Business.

§2-58. Exceptions in Calculating Net Capital Ratio

(1) The provisions of Subsections 1 and 2 of Section 2 of Chapter 2 of this Part shall apply to acquiring securities companies in such manner as stipulated in the following :

1.	The amount equivalent to 8/100 of risk-weighted assets, calculated pursuant to the Merchant Banking Regulation in the case of credit-related assets, shall be deemed deducting item in the application of Article 2-13 ; and

2.	The risk amount pursuant to Article 2-21, Article 2-24 and 2-26 shall not be calculated in the case of credit-related assets.

(2) Notwithstanding the provisions under paragraph (1), for any acquiring securities company for whom three years have not yet elapsed since the date of acquisition, the total assets (including payment guarantee; however, payment guarantee on bonds of the securities company before acquisition shall be excluded; the same hereinafter) in the merchant bank asset/liability table shall be deemed credit-related assets in applying the provisions under paragraph (1) subparagraph 1. In this case, Subsection 2 of Section 2 of Chapter 2 of this Part (excluding Article 2-17 paragraph (1) subparagraph 4) shall not apply to such total assets.

(3) The treasury stock acquired by any acquiring securities company through the exercise of dissenters' right at the time of acquisition shall be deemed an additional item for one year of the date of acquisition in applying Article 2-14. In this case, the market risk amount of such stock shall comply with Article 2-18.

§2-59. Exceptions of Credit Extension to Persons Having a Special Relationship

Article 2-61 paragraphs (1) through (3), Article 2-62, and Article 2-63 shall not apply to the credit-related assets of any acquiring securities company.

§2-60. Liquidity Ratio

Any acquiring securities company shall maintain its domestic currency liquidity ratio pursuant to Article 25 of the Regulation on Supervision of Merchant Banking Business at the level of not less than 100/100 on the basis of its merchant bank assets and liabilities table. In this case, the items pursuant to Article 2-56 paragraph (2) subparagraph 2 shall be based on the date of acquisition.

Chapter 4.

Restriction on Specific Financial and Managerial Acts

§2-61. Ceiling on Holding of Securities, etc. Issued by Persons Having a Special Relationship

(1) No securities company is allowed, except the cases in the following, to hold any securities issued by any corporation whose shareholder is the largest shareholder or the principal shareholders of such securities company. However, such securities company shall dispose of such securities within three months from the acquisition date in the case of acquisition of any securities when falling under the provisions of subparagraphs 3 through 7 and 9, or from the date of completion of stabilization and market-making in the case of acquisition of any securities when falling under the provisions of subparagraph 8:

1.	Acquisition of bonds as prescribed in Article 2 paragraph (1) subparagraph 3 of the Act. However, these provisions shall not apply to the case of acquisition of bonds, except those in the following, from among those which are recognized as bonds prescribed in Article 2 paragraph (1) subparagraph 3 of the Act in accordance with other statutes.

a. Bonds issued by the KDIC;

b. Bonds issued by the KAMCO; and

c. Bonds issued by Government-owned institutions.

2.	Acquisition of corporate bonds guaranteed by any financial institution, etc. which is allowed to engage in the bond guarantee business pursuant to the relevant Statutes;

3.	Acquisition of securities by the request for buy or sell by any account holder in relation to the securities savings business pursuant to Article 501 of the Act.

4.	Acquisition for the achievement of the purpose concerned in exorcising any rights or performing any obligation by such securities company.

5.	Acquisition of odd lots in accordance with Section 4 of Chapter 2 of Part V;

6.	Acquisition of the stocks concerned by Participation as an underwriter when any listed corporation or registered corporation makes a public offering ;

7.	Cases where securities presently held become owned by the largest shareholder or principal shareholders due to the changes in the largest shareholder and principal shareholders;

8.	Acquisition of shares which are the object of stabilization or market-making pursuant to Article 83-8 of the Decree; and

9.	Underwriting of securities in accordance with the Regulation on Securities Issuance and Disclosure.

(2) No securities company is allowed to hold any stocks, bonds and commercial papers (to be calculated on the basis of market value, and excluding those acquired by equity investment) issued by any person having a special relationship (referring to those as stipulated in Article 2-8 subparagraph 4; the same hereinafter in this Chapter) in excess of 8/100 of its shareholders' equity, However, every securities company may hold such securities in excess of such coiling up to three months in the case of paragraph (1) subparagraphs 3 through 9 or in the case or holding in excess of such rate due to the changes in the shareholders' equity or changes in the market price of any stocks, bonds, commercial papers, etc, issued by any person having a special relationship.

(3) No securities company is allowed to lend money or extend credits (referring to the credit extension pursuant to Article 35-15 of the Decree) to any person having a special relationship. However, these provisions shall not apply to any loan to any officer within the amount, whichever is smaller between the annual salary of such officer and 100 million won.

(4) The shareholders' equity under paragraph (2) refers to the amount calculated by the following formula, Until the (provisional) Settlement of accounts is fixed, "end of the latest (provisional) accounting period" in the following formula shall be construed as "end of the immediately preceding (provisional) account period".

Shareholders' equity = Total assets as of the end of the latest (provisional) fiscal year - Total liabilities as of the end of the latest (provisional) fiscal year + Increase or decrease in capital stock and capital surplus after the end of the latest (provisional) fiscal year concerned.

(5) No securities company is allowed, in trading commercial papers pursuant to Article 2-3 subparagraph 4 of the Decree (hereinafter, "commercial paper"), to purchase commercial papers issued by its affiliate in excess of 25/100 of the total purchase of commercial papers on the basis of face value for the accounting period concerned.

§2-62. Payment Guarantee on Corporate Bonds

Any securities company is allowed, only when it satisfies the following requirements, to guarantee the payment of principal and interest of the corporate bonds which are to be issued by any enterprise for the debt rescheduling.

1.	Such enterprise should be an enterprise selected as eligible for workout (normalization) in accordance with the agreement among financial institutions on workout (or any agreement corresponding thereto);

2.	Such securities company should Participate in the agreement mentioned in subparagraph 1; and

3.	Such securities company should have provided guarantee of the payment of the principal and interest of the corporate bonds to be substituted.

§2-63. Restriction on Guarantee of Liabilities for Others

No securities company is allowed to guarantee any liabilities for others, except overseas subsidiaries to be specified under Article 2-56.

§2-64. Mutatis Mutandis Application of Other Provisions

Article 2-9 and Article 2-10 shall apply mutatis mutandis to any specific financial acts by every securities company in applying the provisions of this Chapter.

Chapter 5.

Matters to be Reported

§2-65. Purpose

(1) The purpose of the provisions under this Chapter is to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Article 47 through Article 54, Article 54-2 of the Act, and Article 35-13, Article 36-2, Article 37 and Article 84-28 of the Decree.

(2) The matters to be reported which are not stipulated in this Chapter shall comply with separate regulations.

(3) The terms used in this Chapter shall be the same as defined in the following. However, those not defined in this Regulation shall have the same meanings defined in the relevant statutes:

1.	The term "overseas branch and office" refers to any overseas liaison office, overseas branch, overseas subsidiary, and overseas affiliate.

2.	The term "overseas liaison office" refers to a liaison office established in a foreign country by a securities company for collecting and distributing information related to its securities market or conducting other business similar thereto.

3.	The term "overseas branch" refers to a branch or a business place established in a foreign country for conducting the securities business.

4.	The term "overseas subsidiary" refers to a corporation conducting the securities business in a foreign country by any of the following methods;

a. Method that any securities company owns 50/100 or more of the outstanding shares or the total equity investment of a corporation in a foreign country or de facto controls the management thereof; or

b. Method that any securities company have any corporation as mentioned in item 4a own 50/100 or more of the outstanding shares or the total equity investment of another corporation which engages in the securities business in a foreign country or de facto control the management thereof.

5.	The term "overseas affiliate" refers to a corporation other than overseas subsidiaries, from among those in which any securities company, directly or through its any overseas subsidiary, has made an investment in a foreign country.

§2-66. Filing of Closing Documents

(1) Every securities company is required to file with the FSC its closing documents in the following within three months from the closing date of its fiscal year:

1.	CPA audit report;

2.	Financial statements and their supplementary schedules;

3.	Reports on the net capital ratio and ratio of assets to liabilities prepared with the adjusted financial statements; and

4.	Documents under Subparagraphs 1 and 2 of overseas branches and offices, However, these provisions shall not apply to the case where the document. mentioned in subparagraph 1 is not prepared in accordance with the statutes of the host country.

(2) Any securities company shall, when the contents of its closing documents to be filed pursuant to the provisions of paragraph (1) are different from those of the business report or financial report as of the closing date of a fiscal year prepared and filed pursuant to Article 2-58 paragraph (1) or (3), file the data explaining the details and reasons thereof together with such closing documents.

§2-67. Filing of Business Report

(1) Every securities company shall file with the FSC its business report pursuant to Article 47 of the Act within 45 days from the end of every quarter.

(2) The business report pursuant to the provisions under paragraph (1) shall include items prescribed under the subparagraphs of Article 35-13 of the Decree and the following subparagraphs. However, any ESBC may include the requirements prescribed under the subparagraphs of Article 35-13 and only net capital ratio under the following subparagraph 1:

1.	The net capital ratio and ratio of assets to liabilities as of the end of the last quarter:

2.	Information on management control structure;

3.	Information on risk management policy;

4.	Information on internal control policy for compliance, and

5.	Other material information on the management and business of the company.

(3) Securities company shall file semiannual review report with an external auditor when it files the net capital ratio under paragraph (2) subparagraph 1.

(4) Securities company shall file with the report (hereinafter, "financial report") the following information to the Governor within 45 days from the ending date of each quarter. However, ESBCs may include only subparagraphs 1 and 2.

1.	Balance sheet and income statement;

2.	Status of securities trading and brokerage income;

3.	Status of securities underwriting and underwriting fee income;

4.	Status of business by branch;

5.	Status of guarantee on corporate bonds;

6.	Details for the calculation of net capital ratio and ratio of assets to liabilities;

7.	Status of classification of asset soundness and accumulation of allowance pursuant to Article 2-4 paragraphs (1) and (2);

8.	Record of commercial paper transactions ;

9.	Documents corresponding to those under subparagraphs 1 through 4 of overseas branches and offices, and the report on net capital to be filed with the supervisory authority of any host country or any report similar thereto; and

10.	Other information to be determined by the Governor which is necessary for the supervision on soundness of a securities company.

(5) A securities company may file business reports pursuant to the provisions of paragraphs (1) and (4) in writing or in electronic document in accordance with the stipulations of the Governor.

(6) The Governor shall determine standard formats for business report, balance sheet, and income statement by accounting heading and title pursuant to the provisions of paragraph (4).

□ 2-67-2. Reporting on OTC Financial Derivatives

(1) A securities company conducting OTC financial derivatives transaction business shall report to the Governor on details of the monthly OTC financial derivatives transactions by the tenth day of the next month.

(2) A securities company shall report to the Governor without delay when it fails to achieve capital adequacy ratio or equity capital requirements provided under Article 36-2 paragraph (2) subparagraph 1 item c of the Decree and when it meets the ratio or requirements thereafter.

§2-68. Status Report on Foreign Exchange Business

Every securities company conducting foreign exchange business shall report on the status of foreign currency assets and liabilities, supply and management of foreign currency funds by maturity, and other information needed for the enforcement of Articles 2-44 and 2-44-5 in writing or in the form of electronic data in accordance with the stipulations of the Governor.

§2-69. Public Notice of Account Settlement by Domestic Branches of Foreign	Securities Companies

(1) Every domestic branch of a foreign securities company shall make public notice of its closing balance sheet in a daily newspaper within 60 days from the end of a fiscal year.

(2) Every domestic branch of a foreign securities company is required to file with the Governor the documents corresponding to those under Article 2-66 paragraph (1) subparagraphs 1 and 2, from among the closing documents concerning the business of its head office, within three months from the end of the fiscal year of its head office. However, when it has any justifiable reason not to file by such deadline, the Governor may extend such deadline.7

Chapter 6.

Supplementary Provisions

§2-70. Management Disclosure

(1) Any securities company (excluding those that trade on the KOSDAQ market) shall maintain the business report to be filed with the FSC pursuant to the provisions of Article 2-67 at its head office, branches and other places of business or in the form of electronic document for one year period for public perusal.

(2) Specific matters relating to items and methods for the disclosure of business report pursuant to the provisions of paragraph (1) shall be determined by the Chairman of the KSDA.

(3) Every securities company must disclose the relevant contents, in the event the soundness of its management either has been damaged or is likely to be damaged due to cases applicable under the following subparagraphs:

1.	Cases where a big loss or financial scandal occurs;

2.	Cases where any prompt corrective measures pursuant to Article 2-32 through Article 2-34 and Article 2-40 have been taken against such securities company; and

3.	Cases to be determined by the Governor, from among those corresponding to subparagraphs 1 and 2.

(4) The subjects, contents, methods, time, etc of disclosure pursuant to the provisions under paragraph (3) shall be determined by the Governor.

(5) In the event a securities company makes disclosure of matters prescribed under paragraphs (1) through (4) without due diligence through false statement(s) or omission(s) of material facts of information, the Governor may require the securities company of re-disclosure(s) or correction(s).

§2-71. Delegation of Power

(1) The following duties related to the provisions under this Part may be delegated to the Governor:

1.	Receipt of declaration documents, applications for approvals, and reports to be filed with the FSC;

2.	Preparation of agenda for the FSC resolution and reporting documents to the FSC;

3.	Execution of the FSC regulations or decisions;

4.	Approval for disposal of legal reserve of retained earnings of any branch of a foreign securities company pursuant to Article 15-3 paragraph (3) of the Decree; and

5.	Handling of other matters delegated by the FSC.

(2) The Governor may determine detailed provisions necessary for the implementation the provisions of this Part.

(3) The Governor may formulate any established rules in regards to the provisions of this Part.

PART III.

ADMINISTRATION OF CUSTOMER'S DEPOSIT

§3-1. Purpose

(1) The purpose of the provisions of this Part is to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Article 54 of the Act and Article 35-3, Article 35-5, Article 35-7, Article 35-9, Article 35-10 and Article 37 of the Decree with respect to the administration of customers' deposited property by every securities company.

(2) The terms used herein this Part shall defined as under the relevant statutes.

§3-2. Calculation of Deposit Requirement and Deposit Deadline

(1) The scope of customers' deposit which is the base in the calculation of the size of the customers' deposit to be deposited in the KSD by any securities company pursuant to Article 35-3 paragraph (2) of the Decree (hereinafter, "deposition requirement") shall be as follows:

1.	Customers' deposit, and deposits for futures and options trading (customer margin in cash for the trading contracts of securities and the money deposited by a foreigners in a foreign currency, in the foreign currency account exclusively for investment at a foreign exchange bank in relation to the trading of securities may be excluded);

2.	Deposits by savings account holders;

3.	Deposits by beneficiaries; and

4.	Conditional deposits.

(2) The deposit requirement of any securities company subject to deposition shall be the sum of the amounts equivalent to 100/100 or more of the deposits under paragraph (1) (the amount less than 1 million won shall be rounded up).

(3) A securities company subject to deposit requirement shall make deposit with deposit taking institution by the next business day based upon calculation of deposit amount for each business day. The FSC, however, may require the securities company failing to satisfy the deposit requirement by withdrawing separate deposits pursuant to Article 3-4 paragraph (1) to deposit any amount needed to satisfy the requirement with the deposit taking institution within five business days from the date of withdrawal.

§3-3. Operation of Separate Deposit

(1) "Other methods to be stipulated by the FSC" prescribed under Article 35-7 paragraph (2) subparagraph 3 of the Decree shall, in case the KSD operates the money deposited by securities companies subject to deposit pursuant to Article 3-2 (hereinafter referred to as "separate deposit"), refer to any of the following methods.

1.	Purchase of the bonds issued by the KAMCO, the bonds issued by the KDIC, and other bonds as prescribed in Article 2 paragraph (1) subparagraph 3 of the Act (excluding those which are recognized as bonds prescribed under Article 2 paragraph (1) subparagraph 3 of the Act in accordance with other statutes);

2.	Purchase of RPs. However, the bonds eligible for repurchase shall be limited to those purchasable with the separate deposit by the KSD in accordance with the Act, the Decree, and this Regulation, and the bonds (excluding stock-related bonds) issued by any stock listed corporation or registered corporation whose credit rating is A or higher by any credit rating agency(ies) authorized by the FSC pursuant to Article 4 and Article 4-2 of the Act Concerning the Use and Protection of Financial Information.

3.	Making a deposit in the Bank of Korea under the Bank of Korea Act;

4.	Making a deposit or purchase of financial products, the return of whose principal, at least, is secured in accordance with the Depositors Protection Act;

5.	Making a deposit or purchase of CDs issued by any bank which has the ratio of capital to risk-weighted assets (hereinafter referred to as "the BIS ratio") of 8/100 or more;

6.	Purchase of the bonds (excluding stock-related bonds) issued by public corporations pursuant to Article 199 paragraph (2) of the Act;

7.	Loan of short-term funds (limited to call loan) to any financial institution which is not subject to prompt corrective measures (referring to the prompt corrective measures due to the failure in satisfying the financial soundness ratios, such as net capital ratio and the BlS capital adequacy ratio), from among those under the supervision of the FSC in accordance with the statutes, which are deemed by the KSD to be certain to perform the obligation; and

8.	Purchase of financial products which ale deemed by the Governor to have high liquidity and safety, from among short-term financial products of management companies pursuant to the Regulation on Supervision of Securities Investment Trust Business.

9.	Investment in futures and government bond futures under CD interest rates listed on the Korean Futures Exchange; provided, however, that the total sum of downpayment for entrustment following the investment shall not exceed 5/100 of the separate deposits made.

(2) The aggregate of separate deposit operation amount pursuant to the provisions under paragraph (1) subparagraphs 7 and 8 shall not exceed 20/100 of the daily average balance of the separate deposit for the preceding week to the loan date.

(3) The loan pursuant to Article 35-7 paragraph (2) subparagraph 1 of the Decree and the loan of short-term funds pursuant to the provisions under paragraph (1) subparagraph 7 to an individual securities company shall be made with the separate deposit of the securities company concerned as a financial source. The ceiling of the loan of short-term funds shall be the amount equivalent to 10/100 (5/100 in the close of a securities company whose net capital ratio is no more than 200/100) of its daily average balance of the separate deposit for the preceding week to the loan date.

(4) The KSD shall keep in custody and administer the securities, documents, or certificates to be held in a separate deposit, distinct from its own assets.

§3-4. Withdrawal of Separate Deposit

(1) The FSC may, in accordance with Article 35-5 subparagraph 3 of the Decree, approve the withdrawal of the separate deposit in the following cases:

1.	Cases where the payment of customers' deposits is, or is expected to be, requested in a large quantity;

2.	Cases where it is necessary for the settlement of orders (including the settlement of stock price index futures and options trades) of the customers which are contracted on the exchange market or the KOSDAQ market; or

3.	Cases where it is necessary for the protection of customers and stability of credit order of the securities market.

(2) Any securities company subject to deposition shall, when intending to obtain the approval of the FSC pursuant to the provisions under paragraph (1), file with the FSC the application in which the following information is contained :

1.	Time of withdrawal;

2.	Causes and purposes of withdrawal;

3.	Amount;

4.	Details of withdrawal of customers' deposits (limited to the cases where the application for approval is made pursuant to the provisions under paragraph (1) subparagraph 1) for the last seven business days; and

5.	Method to cover the amount falling short of the deposit requirement.

(3) Any securities company subject to deposit shall be deemed to have obtained the FSC approval pursuant to this Regulation when it withdraws the separate deposit in any of the following cases:

1.	Withdrawal within the amount, whichever is larger, between the amount equivalent to 10/100 of the separate deposit by such securities company for the purpose of meeting the request for the refund of customers' deposits, to be determined by the Governor, and one billion won;

2.	Withdrawal of the amount equivalent to the Exchange margin for the purpose of making deposit of such amount in the Exchange, in relation to the stock price index futures and options trading by customers;

3.	Withdrawal of the amount equivalent to the subscription margin for the purpose of making deposit of such amount in any securities finance company under the Act (hereinafter referred to as "securities finance company") or any bank in such manner as stipulated under Article 3-6 paragraph (2), in relation to the subscription to publicly-offered shares by customers; or

4.	Withdrawal of the amount concerned, for the purpose of the collection of claims from customers and exercise of rights thereto. In this case, the deposit deadline for deposit requirement pursuant to Article 3-2 paragraph (3) with respect to such amount shall be extended by the period necessary for such purpose.

(4) Any securities company subject to deposit shall, when intending to withdraw the separate deposit pursuant to the provisions under paragraph (3) subparagraphs 2 through 4, file with the FSC the application with the inclusion of the following information:

1.	Time of withdrawal;

2.	Causes and purposes of withdrawal; and

3.	Amount.

§3-5. Agreement on Administration of Separate Deposit

(1) Any securities company subject to deposit and the depository institution shall make an agreement on safe administration of the separate deposit and efficient operation thereof, and observe such agreement.

(2) The following contents shall be included in the agreement pursuant to the provisions under paragraph (1):

1.	The depository institution should faithfully administer and operate the separate deposit in accordance with the good faith principle;

2.	The depository institution may request the securities company subject to deposit the materials necessary for the calculation and confirmation of deposit requirement, and such securities company should comply with such request; and

3.	Compensation for the administration and operation of the separate deposit.

(3) The depository institution shall, for the purpose of consultation concerning the safe administration and efficient operation of the separate deposit, establish the advisory committee for the operation of separate deposit, within the depository institution, which is composed of no more than five members recommended by securities companies subject to deposit and the depository institution.

§3-6. Administration of Customers' Deposits not Separately Deposited

(1) Any securities company subject to deposit shall, when intending to exclude the money deposited, in a foreign currency, in the foreign currency account exclusively for investment opened at any foreign exchange bank in the case of calculation of deposition requirement pursuant to Article 3-2, conclude an agreement with such foreign exchange bank, in which the following contents are contained:

1.	The money deposited in the foreign currency account exclusively for investment is the money deposited by customers; and

2.	Such foreign exchange bank should not use the money deposited in the foreign currency account exclusively for investment, for the purpose of offsetting, netting, any right of retention, or any defense for concurrent fulfillment of the claims to such securities company.

(2) Any securities company shall, when receiving any deposit for subscription (referring to the amount deducting any refunded money from the date of refund of the deposit for subscription), deposit such money in a separate account with any securities finance company or bank before the due date for payment, upon marking of the deposit for subscription by issuer, after concluding the agreement in which the following contents should be included. such securities company is not allowed to provide such deposit as collateral:

1.	Contents that such deposit is the money deposited by customers; and

2.	Contents that such deposit should not be subject to offsetting with any claims to any deposit-making securities company, cross calculation, right of retention, and right of defense for concurrent fulfillment.

§3-7. Exceptions to Securities Companies with Unsound Financial Condition

(1) Notwithstanding Article 3-2(1), any securities company who has the net capital ratio of less than 120/100 is required to make a deposit of at least the aggregate (the amount less than 1 million won should be rounded down) of all customers' deposits, except those in the following, with any depository institution from the date on which such securities company recognizes the fact of such shortage of net capital ratio:

1.	Customers' deposits-subscribers;

2.	Withholding income taxes;

3.	Guarantee deposits for lending of securities borrowed KSFC;

4.	Deposited money as advance payments to the KSE for trading; and

5.	Deposits pursuant to Article 3-6(1)

(2) Notwithstanding Article 3-2(1) and (2), any securities company to which any reason prescribed under Article 44-3(4) of the Act (hereinafter, "reason to pay") has occurred is required to make a deposit of any money, such as sales proceed and dividends of customers' securities, principal and interest of bonds, etc, from the date on which the reason to pay occurs (hereinafter referred to as "customers' deposits after occurrence of reason to pay"), with any depository institution distinct from the separate deposit before occurrence of reason to pay, such depository institution shall administer such deposit distinctive with other deposits. However, these provisions shall not apply to any money which has any other reason not to make a deposit, from among customers' deposits after occurrence of reason to pay.

§3-8. Compensation for Use of Customer's Deposits

Every securities company shall pay a fee as a compensation for the use of customer's deposits in such manner as to be determined by the KSDA.

§3-9. Administration of Deposited Customers' Securities

Any securities company shall, when taking deposits of customers' securities, etc, make deposit of such securities with the KSD without delay pursuant to Article 44-4 of the Act. However, when directly keeping in custody deposited customers' securities due to any unavoidable reason, it shall keep in custody such securities in a safe place distinct from its own securities. Such securities company shall prepare in writing the procedure and measures for adequate custody and administration of such securities for implementation

§3-10. Delegation of Power

The FSC shall delegate the following power to the Governor:

1.	Extension of deposit deadline for deposition requirement pursuant to Article 3-2 paragraph (3) p;

2.	Approval by the FSC for the withdrawal of the separate deposit pursuant to Article 3-4 paragraph (1) subparagraphs 1 and 2; and

3.	Receipt and acceptance of declarations and reports to be filed with the FSC under the provisions of this Part.

PART IV.

BUSINESS PRACTICE IN GENERAL

Chapter 1.

General Provisions

§4-1. Purpose

(1) The purpose of this Part is to prescribe matters necessary for the enforcement of the matters under the FSC responsibilities as set forth under Article 52, 54 and 54-4 of the Act, Article 35-11, Article 36-3, Article 37, and Article 37-4 of the Decree and Article 14, Article 20-2 of the Enforcement Rules of the ACT, when the securities companies engage in business activities dealing with the customers.

(2) The terms used herein shall be defined under the following subparagraphs, unless defined otherwise under the applicable laws and regulations.

1.	"Securities Company" corresponds to any person or entity licensed for securities businesses under Article 28 and Article 28-2 of the Act; however, an ESBC shall not be presumed as securities company when applying the provisions under Chapters 2 through 11, Chapter 13, and Chapter 14 hereof, and a financial institution licensed for concurrently carrying out the securities business shall not be deemed as a securities company when applying the provisions under Chapter 9, 10, 12, and 14 hereof.

2.	"Securities" shall mean any of the following subparagraphs;

a. Securities under Article 2 paragraph (1), and Article 2-2 of the Act;

b. With the above securities under item a as the underlying securities, all types of derivatives including options, futures, forward, and swaps; and

c. Other similar investment products equivalent to items a and b above.

3.	"Day trading" shall mean a type of trading where a trader buys and sells issues in a same day in order to profit from the price swing of the day.

4.	"Business Staff" means the employees (including officers) who work for a securities company to deal with customers. They offer securities investment counseling, sell financial products and engage in other business activities dealing with customers.

5.	"System Trading Program" means computer software which excludes an investor's own judgment but instead provides decision-making information on the trading type, transaction timing and trading quotation in accordance with a series of conditions which has previously been built in, or which automatically places trading orders in accordance with such previously built-in formula. Provided, however, that even in case where an investor Partly sets up conditions according to his or her own judgment, it shall be deemed a system trading program if software-provided conditions are limited and they include Particular theory with respect to predictions for stock price.

6.	"Qualified Institutional Investor" means an investor who has been designated by the Governor to have the specialized capacities necessary to engage in securities businesses and who has received from a securities company a written notice that it is a qualified institutional investor (together with the fact that the protective provisions hereunder applicable to the general customer does not apply to a qualified institutional investor); provided that in applying this provision, a person who has notified in writing of its intent to be treated as a general customer to a securities company, which has raised no objection with respect to such intent, shall not be deemed a qualified institutional investor.

7.	"General Customers" means customers who receive services from securities companies other than qualified institutional investors.

8.	"Collective Investment Product" corresponds to investment products the funds of which are collected from unspecific, large number of people and the profits of which are distributed in proportion to investors holdings such as securities issued by a securities company according to the Securities Investment Company Act, beneficiary certificates issued according to the Securities Investment Trust Business Act.

9.	"Asset Management Company" shall mean a trust company under Securities Investment Trust Business Act, an asset-managing company under Securities Investment Company Act and foreign companies equivalent thereto.

10.	"Advertisement" shall mean any provision of information or publicity activities or information that a securities company offers to a large number of people with the medium that customers can have easy access to (e.g. phone call, handbill, TV advertisement, Internet, and e-mail) for the purpose of encouraging customers to buy/sell securities and use other services. However, information that is required to be provided by law and regulation like business plan and public corporate notice and the research analysis report provided by the securities companies as described under Article 4-7 are not deemed to be Advertisement.

§4-2. Scope of Applications

(1) The provisions of this Part shall apply within the scope of a securities company's business dealing with customers, unless other laws and regulations provide otherwise for the businesses carried out by a securities company as a concurrent business and other incidental business pursuant to the provisions under Article 51 of the Act.

(2) Any breach by officers and employees of a securities company and the persons entrusted with the business of a securities company (officers and employees) of the provisions of this Part shall be deemed to be a breach by the securities company. In this case, any breach by the persons entrusted with the business of the securities company of the provisions of this Part shall be deemed to be a breach by the securities company within the scope of the business entrusted by the securities company.

(3) In the event that it is acknowledged that a securities company made sufficient efforts to prevent illegal acts of the officers and employees through establishment and actual implementation of appropriate internal control standards and procedures, notwithstanding the provisions under paragraph (2) above, the FSC may not take any measures under Article 53 paragraph (5) of the Act against the securities companies of which the officers and employees have committed illegal acts.

§4-3. No Action Letter

(1) If it is unclear to a securities company whether a certain act (including certain methods of doing business or operational activities) is in violation of any provision(s) of the Rules, or if a security company concludes that application of the relevant provision would be objectively inappropriate due to a change in business environment or other complementary measures the security company has previously taken, the securities company may make a written inquiry in advance to the Governor as to whether such act will be subject to any measure in the future examination or inspection in order to avoid any sanction in the future examination or inspection.

(2) After making an overall examination on the inquiry under paragraph (1) above, which includes, without limitation, the intention of the relevant provision, purpose and direction of the supervision and adequacy in applying the provision to the act at issue, the manager of the responsible department shall provide with a written opinion on the adequacy of a sanction against the relevant act. In the event that the manager of the responsible department concludes that it would be unfair and unreasonable to sanction the act, he or she may notify of such intent in writing (the No Action Letter). In this case, the manager of the responsible department shall clearly specify (i) the scope of the action subject to the No Action Letter and (ii) that the No Action Letter does not restrict decision-making of the FSC and the Governor.

(3) The manager of the responsible department who has issued the No Action Letter pursuant to the provisions under paragraph (2) above shall make a public notice of the contents of the No Action Letter in writing or by electronic communication within one month from the issuance date of the No Action Letter.

§4-4. General Principles of Business

(1) A securities company must comply with the following business principles in order to realize maximum customer profit and fair market trading order.

1.	A securities company must show integrity and do its business in a fair way.

2.	A securities company must fulfill its obligations as its customers' asset manager in good will.

3.	A securities company must secure enough human and material resources that are necessary to do securities business and have needed business procedures in place.

4.	A securities company shall provide proper investment advice to customers and, for this purpose, shall make appropriate efforts to learn information about customers.

5.	A securities company shall notify customers about important information necessary for the customers reasonable decision making.

6.	A securities company shall be careful not to create any conflict of interest with its customers. In case it is unavoidable, the securities company shall notify in advance its customers thereof or take proper measures to ensure fair treatment of such customers.

7.	A securities company shall comply with finance-related laws as set forth under Article 18-2 paragraph (2) of the Decree and regulations and orders stipulated or issued by the FSC.

(2) In case a securities company has committed an act in contravention of any of the subparagraphs under paragraph (1) above and has considerably infringed upon a customers interests or the fair trade order, the FSC may take disciplinary actions under Article 53 paragraph (5) subparagraph 2 of the Act by taking into account the extent of infringement, adequacy of internal control and whether or not any willful misconduct or negligence was involved.

(3) The KSDA can set guidelines that are necessary for the implementation of each principle in this Part.

Chapter 2.

Prohibition of Unsound Business

§4-5. Prohibition of Front Running

(1) Prior to executing an order placed by a customer (including the case where the customer is sure to place an order; hereinafter the same) for a purchase (sale) of securities which is expected to have a material effect on the market price of such securities, a securities company receiving such order shall neither purchase (or sell) the same kind of securities on its own account nor solicit any third Party to purchase (sell) such securities. However, this provision shall not be deemed to have been violated in any of the following cases.

1.	In case the proprietary asset manager proves that the trading was made without being aware of the contents of the order placed by the customer.

2.	In case it is difficult to deem that the trading or solicitation was made by intentionally taking advantage of market-price fluctuation to be resulted by the customer's order, such as arbitrage trading by using the difference between prices in the spot market and the futures market.

(2) A securities company shall not provide a third Party with order information prior to its publication to the market when it receives a customer's order that is expected to materially influence the market price of securities. However, this provision shall not be deemed to have been violated if all of the following conditions are met:

1.	In case the information was provided for smooth execution of the trade order at issue;

2.	In case there is reasonable grounds to believe that the Party receiving the information does not trade based on the predicted stock price change or the information on the order will not be transferred to another third Party; or

3.	In case no information regarding the customer who placed the order was provided.

(3) When a customer gives a limit order, a securities company must not buy or sell securities of the same issues for its own account at a price that is the same as or better than the customer's limit price (lower price for buying order and higher price for selling order) before the customer order is completed. However, this provision shall not be deemed to have been violated if the relevant trading falls under any of the following subparagraphs:

1.	In case it is shown that the trading conditions have not worsened due to such trading;

2.	In case the proprietary asset manager can prove that the trading was made without being aware of the contents of the order placed by the customer;

3.	In case of an arbitrage trading using the difference between prices in the spot market and the futures market.

§4-6. Prohibition of Investment Recommendation for Trading on Own Account

(1) A Security Company shall not recommend its customers to purchase or sell specific securities favorable or smooth trading of such securities on its own account in the securities market, other than in transactions where the customer is a counterpart.

(2) When a securities company, in connection with its business, acquires confidential information of a company that issues securities, the securities company shall not trade such securities on its own account or solicit a third Party to trade them. However, this provision shall not be deemed to have been violated if the proprietary asset manager or business staff proves that he or she has traded or solicited without being aware of such non-public, material information.

§4-7. Preparation and Disclosure of Research Analysis Materials

(1) When a securities company publishes to the general public its own market research reports or trade recommendation information containing opinions or forecasts on the value of certain securities (hereinafter referred to as "research analysis reports"), it must not trade the stocks (including equity-linked-bonds) subjected to the analysis contained in the research analysis report on its own account from the date on which the contents of the research analysis report have practically been finalized, e.g., internally deciding not to further revise the contents of the research analysis report, the until after 24 hours have passed from publication thereof. However, this provision shall not be deemed to have been violated in any of the following cases:

1.	In case it is difficult to deem that the contents of the research analysis report are to directly or indirectly solicit customers to purchase or sell the securities at issue

2.	In case it is difficult to deem that the proprietary asset manager did not intentionally make use of the trade inducement or the expected fluctuation in stock price such as the arbitrage trading by using the differences between prices in the spot market and the futures market, as a result of the release of the research analysis report.

3.	In case the proprietary asset manager proves that the trading was made without being aware of the contents of the released research analysis report.

(2) Where a securities company provides survey and analysis materials or their primary information to a third party before public disclosure, it shall announce to the public that the materials were supplied to a third party in advance at a specific time.

(2) In the event that a securities company first provides a third Party with a research analysis report prior to its publication to the general public, at the time of its publication, the securities company shall notify to the general public of such third Party provision of the research analysis report and the time in which the research analysis report was released to such third Party in advance.

§4-8. Prohibition of Compensation for Losses

(1) A securities company shall not, neither directly nor indirectly, compensate for all or Part of losses incurred by their customer arising from securities trading or other transactions by providing money, discounted commissions or effecting the securities transaction under abnormal conditions; provided that any of the following cases shall not be deemed to be an act to compensate for losses:

1.	Compensation for losses by way of private settlement if it is not clear whether an act taken by a securities company or its officers or employees is illegal (including any illegality due to an error; hereinafter the same under this Article), except for when it is contrary to the basic principle that customers shall take responsibility for their own losses

2.	In case the compensation is provided for losses resulting from an illegal action of a securities company

3.	Compensation for losses or damages through dispute mediation procedures or under juridical settlement procedures

(2) In case of a compensation by a securities company or its officers or employees pursuant to the proviso of (1) above, the securities company or its officer or employee shall report it in advance to the Compliance Officer (including its delegate; hereinafter as such).

§4-9. Notification of Risk for Day-traders

(1) A securities company shall not make a false description of, or exaggerate, the investment performance of day-trading or system trading program, which may mislead customers.

(2) A securities company shall notify general customer of any risk involved in day-trading or system trading. Persons to receive such risk notification, time, method and contents of risk notification shall be determined by the KSDA.

(3) A securities company shall not recommend any general customer who is deemed to be unsuited for day-trading considering his/her trading experience, knowledge, financial condition, and investment objective by providing a training for day-trading skills.

(4) A securities company must not solicit a general customer to use certain system trading program unless there is a reasonable ground to believe that the customer properly understands system trading program in the light of his/her knowledge of and experience in securities trading.

§4-10. Prohibition of Acceptance of Illegal Trading Orders

(1) A securities company must not accept orders falling under any of the following subparagraphs:

1.	When a securities company knows a customer's trading is against Article 188-2 or Article 188-4 of the Act (including cases where a securities company does not know of any violation of the said provisions due to its gross negligence):

2.	When it is manifestly expected that, given a customer's trading/settlement history, the size of securities holdings and financial state, the customer will not settle the trade and thus the securities company may not be able to settle the trade,;

3.	When it is apparent that a customer has no true intent to trade in view of the following factors:

a. The number and the average trading volume of the listed and registered shares at issue;

b. Share ownership distribution of listed or registered corporations issued the shares;

c. Size of the customers deposited asset and mode of trading; and

d. Ask and bid status at the time of the trading order

(2) A securities company must not support or arrange for a customers order when it knows the customer intends to evade taxes through the trading.

(3) The KSDA may set minimum control standards for a computer program used by a securities company necessary for control of trades applicable under paragraph (1) subparagraph 3.

§4-11. Prohibition of Offering Illegal Benefits to Asset Managers

(1) A securities company must not provide any benefits such as payment of expense for service provided by a third Party, gift, entertainment, and trip money or other monetary benefits, directly or indirectly, to any person as set forth under the following subparagraphs:

1.	A person who engages in the business of investing in assets entrusted by third Parties in securities or other financial products dealt by a securities company such as management companies under the Securities Investment Trust Business Act, asset management companies under the Securities Investment Company Act, investment advisory companies under the Act, trust companies under the Trust Business Act or pension funds;

2.	A person who performs proprietary management of assets of companies and other organizations;

3.	Officers and persons who make decisions with respect to asset management as set forth under subparagraph 1 above (including their spouse and family members in a direct line);

4.	Spouse and family members in direct line of the entities as set forth in Subparagraph 2 above.

(2) Notwithstanding paragraph (1) above, paragraph (1) is not deemed to have been violated in any of the following cases:

1.	In case the contents of the offered benefits are not contrary to the common social standards and the financial value thereof is within the limit set by the KSDA;

2.	In case the benefit was made in order to enhance investment performance of fund (including operating assets such as pension fund, hereinafter the same) or assets operated by a person as set forth under paragraph (1) 1 or 2 and was offered in accordance with the KSDA-specified rules concerning contents, methods and procedures relating to provision of benefits;

(3) Regarding the offering of benefits to persons as set forth under paragraph (1) 1 through 3, a securities company must establish and operate an adequate internal control system in order not to undermine their fiduciary duty to the company he/she works for or operating funds he/she operates.

§4-12. Prohibition of Limiting Competition

(1) A securities company must not engage in prior consultations with other securities companies to designate the ask and bid, securities trading price, trading conditions and commissions in order to limit competition. However, this principle is not applied in the case where the consultation among securities companies on the terms of securities trading is necessary for the investor protection and smooth securities transactions within the scope of not undermining the fair competition in the market.

(2) Except for cases as set forth under the proviso of paragraph (1), a securities company must not request other securities companies to change the ask and bid, trading price, other trading conditions or change in commission rates. It also must not pressure other securities companies in a direct or indirect manner.

§4-13. Prohibition of Consulting by Unqualified Account Executive

(1) A securities company must not allow an employee who is not a person (investment consultant) registered with the KSDA according to qualification criteria established by the KSDA to offer consulting to customers on investment of securities or property management in favor of the company. However, this provision is not applied in case where the KSDA does not require any qualification criteria for consulting.

(2) A securities company shall establish for adequate internal control standards in order for investment consultants to comply with the applicable laws and regulations, the orders issued by the regulatory authorities thereunder and rules concerning business activities and duties of investment consultants set by the KSDA.

Chapter 3.

Investment Recommendation

§4-14. Prohibition of Promoting Excessive Transactions

(1) A securities company must not encourage general customers to trade stocks frequently or excessively. The criteria for the frequency and excessiveness are determined based on the followings:

1.	Commission fees paid by customers

2.	Customer's asset conditions and investment objectives

3.	Whether a customer sufficiently understands the possible risks of trading securities based on the customer's investment knowledge and/or experience

4.	Validity of encouragement/ recommendation of each trading

(2) Securities company shall select any account having been probably encouraged to trade frequently or excessively by a business staff member, and shall check regularly whether the investment recommendation offered by the business staff member complies with the principle of paragraph (1) above. A securities company must set documented internal control standards for selection of accounts subject to inspection and methods, timing, and recording of inspection results and must implement such standards.

§4-15. Investment Recommendation

(1) In case a securities company recommends a customer to trade certain securities or to adopt certain strategy and technique for trading or certain strategy and technique for management and allocation of certain property (investment recommendation), the contents of such recommendation shall have proper and reasonable grounds based upon reliable information, logical analysis, inference, and expectation.

(2) When a securities company makes investment recommendation to general customers, there must be reasonable grounds that the recommendation can be seen as suitable in light of the customer's investment objectives, financial state, investment in other securities and risk disposition.

(3) A securities company must make an adequate effort to find out the following information (hereinafter referred to as customers information) through face-to-face consultation with customers before it makes investment recommendation. A securities company also must manage a customer's information in a written form confirmed by the customer.

1.	customer's financial state;

2.	customer's income;

3.	customer's investment objective;

4.	customer's attitude towards possible risk;

5.	customer's investment experience and knowledge; and

6.	customer's dependency on investment recommendation by an employee of a securities company.

(4) The provisions under paragraphs (2) and (3) shall not apply in respect of the general customers applicable under any of the following subparagraphs.

1.	A customer who exclusively deals with securities with no-high risk such as MMF, national and public bonds or any other equivalents;

2.	A securities company expressively notifies of its intent to bear no obligation specified under paragraph (2) to a customer and the customer has consented thereto in writing or through electronic communication;

3.	A customer who refuses to provide his/her information even after the securities company informs the customer that he/she may not be protected without such customer's information as provided under this Article of the Rules. However, if the customer provides only Part of his information, then paragraph (2) shall apply within the scope of the information provided.

(5) A securities company must not provide general customers applicable under paragraph (4)3 with investment recommendation regarding any of the following securities:

1.	Securities that are not listed or registered on, and not confirmed to be listed on or registered with the KSE or KOSDAQ;

2.	Securities that are designated as issues subject to an administration, surveillance or investment requiring caution by the KSE or KOSDAQ;

3.	Corporate bonds which fall below investment grade or have not received any credit rating, asset-backed securities, commercial papers and any other equivalent bonds with high risks;

4.	Margin transactions and securities trading the settlement of which is unlikely in light of the size of customers deposited assets; and

5.	Stock index future, stock index option and other derivatives products equivalent thereto.

(6) Any person in charge of supervision of operation of a branch in accordance with the internal control standards set by a securities company shall separate the account of customer who actually relies upon investment recommendation offered by the securities company because he/she has no knowledge and experience for securities transaction and shall check periodically the status of trading in order to ensure that the employees investment recommendation is offered in accordance with relevant regulations under this Part.

(7) A securities company must set and operate internal control standards in order to comply with the principles contained in this Article.

§4-16. Prevention of Conflict of Interests Relating to Recommendation of Trading

(1) If a securities company holds material interest in price or trading of certain securities due to special reason (debenture payment guarantee, execution of underwriting agreement, affiliate relationship, targets of M&A transactions for which it provides services, holding more than 1/100 of total stocks that a company issues.) other than ordinary interest held by it in relevant business, the securities company shall not recommend general customers to sell or purchase certain securities without informing them of such interest in advance; provided that if the securities company failed to inform the said interest due to reason falling under any of following, this provision is deemed not to have been violated:

1.	Where customer had knowledge of interests held by the company or where there exists a reasonable ground to believe that customer knew of the interests at the time recommendation for purchase and sale was made; provided, however, that recommendation made based upon survey and analysis materials shall not be applicable.

2.	A business staff member making trading recommendation did not know of such interest; provided, that this provision shall not apply if a securities company instructed or induced the business staff member to make investment recommendation to customers without informing such interest to such business staff member.

3.	Where recommendation for purchase and sale is recognized as in the best interests of customer; provided, however, that recommendation made based upon survey and analysis materials shall not be applicable.

(2) A securities company shall ensure that the economic interest of an individual preparing data for investigation and analysis in connection with recommendations he makes for purchase and sale of stocks and or stock related bonds that may have influence upon his interest be disclosed to general customers, in which case the Korea Securities Dealers Association shall determine the scope of economic interest, content and venue of the disclosure.

(3) A securities company shall not receive economic benefits from issuer of the securities for which recommendations of purchase and sale have been made, or any person standing in special relation thereunder.

Chapter 4.

Provision of Information to Customers

§4-17. Provision of Information prior to Transactions

(1) A securities company must inform its customers of the following fact prior to execution of the trade order of the customers. However, if there is a reasonable ground to believe that a customer is aware of the fact, this principle is not applied.

1.	The fact that the securities company acts as the securities trading broker, intermediary, agent or counter party to the customers trading;

2.	The fact that the securities company acts at the same time as a securities trading broker, intermediary or agent for other customers as well.

3.	The fact that when a securities company acts as an intermediary or agent in behalf of customers, the company can let the counter party to the customer trade know the identification of the customer, if such a request is made.

4.	Verification of responsibility for any defects relating to relevant securities when they are delivered for settlement of transaction.

5.	Commission, tax and public imposts to be paid by customers with respect to relevant trading or calculation methods thereof.

(2) A securities company shall, when any customer intends to establish an account for any transaction involving a higher degree of investment risks, such as derivatives including stock index futures and options, margin trading, foreign currency securities trading deliver an explanatory note in which the following information should be included, and provide a verbal explanation in detail, and receive the signature or seal of such customer with respect thereto:

1.	Procedure, mechanism, and nature of the transaction concerned;

2.	Risks involved in the transaction concerned;

3.	Contents and methods of notice related to the transaction concerned; and

4.	Rights and duties of customers and such securities company, and other material matters to be determined by the KSDA, which may influence the property right of any customer.

(3) Notwithstanding the provisions under paragraph (2), a securities company may not take such steps including delivery of an explanatory note as under paragraph (2) for the customers in the following:

1.	Cases where such customer refuses to receive an explanatory note with his/her signature or seal; and

2.	Other cases under standards as determined by the Governor.

(4) A securities company shall the explanatory note pursuant to the provisions under paragraph (2) available for customers review at any time by maintaining it at any place in every branch where any customer can easily access or by disclosing it through the electronic communication detailed.

(5) contents of an explanatory note pursuant to the provisions under paragraph (2) shall be determined by the KSDA.

§4-18. Notification of Securities Transactions

(1) A securities company shall, when a trade or any other transaction by the order of a customer is executed, immediately notify (including the method which allows any customer who has placed orders by the electronic communication method make inquiries as to trading details at any time) such customer (including his/her agent designated by such customer with respect to the trade notice) of the details, such as type, issue, price, quantity, contract date, fees and taxes (hereinafter referred to as the contract details) by mail, delivery of trade report, telephone, telegram, fax, computer and other electronic communication system similar thereto. However, it shall have any customer, who does not want to receive such notice, immediately notified at his/her request by maintaining the document describing such contract details at its business office or by the electronic communication method.

(2) Notwithstanding the provisions under paragraph (1), when the KSD delivers trade certificate to any customer who Participates in book-entry delivery, the trading details shall be deemed to have been notified. However, this principle is not applied to the case where any customer intends to receive such notice by the method as stipulated under paragraph (1).

(3) A securities company shall confirm the method of notice preferred a customer prior to the execution of trade, and record and maintain such method.

(4) Notwithstanding the provisions under paragraph (1), a securities company shall, in making a notice of contract details, shall deliver a trade report to any customer with respect to any transaction whose contract details are not recorded and administered with customers account book or passbook.

§4-19. Notification of Monthly Details of Securities Transactions

(1) A securities company shall notify, by mail, a customers concerning the contents of trading and other transactions for a month and the balance as of the end of such month (hereinafter referred to as "monthly trading record") by the 20th day of the following month, for the accounts with trading activities during such month; and a semi-annual trading record by the 20th day after a semiannual period, for accounts without trading activities for such period. However, in any of the following cases, such notice shall be deemed a notice by mail:

1.	Cases where a securities company which receives an order by the methods as stipulated in Article 4-24 notifies of monthly or semiannual trading record through computer or other electronic communication means similar thereto as agreed with such customer in advance. In this case, when it has its customers make inquiries as to notice details pursuant to the provisions concerned through the electronic communication method at any time, such case shall be deemed to have been notified through the electronic communication method;

2.	Cases where a securities company has maintained monthly trading details and balance or semiannual balance of any account of any customer who does not want to receive the notice thereof at its business offices or maintained the electronic record of such information in computer, in order to make prompt notice at the customer's request;

3.	Cases where a securities company has maintained monthly trading details and balance or semiannual balance at its business offices, in order to make prompt notice thereof at the request of any customer for the account whose trading records mailed by post pursuant to the provisions under paragraph (1) have been returned more than three times;

4.	Cases where a securities company has maintained semiannual balance at its business offices, in order to make prompt notice at the request of any customer for the account which have no record of trading or other transaction for a semiannual period and whose valued amount of deposited property at the end of such period does not exceed the amount to be determined by the Governor; and

5.	Cases of transactions with passbook in order that any customer confirms the details on trading and other transactions at any time.

(2) A securities company shall make inquiries as to the balance of any customers account whose registered seal is changed, securities card is reissued, which is transferred from other business offices, or whose integrated account is invalidated.

Chapter 5.

Sales of Collective Investment Products

§4-20. Neutrality of Sales of Collective Investment Product

(1) A securities company must not make any differentiated effort to promote sales or collection of certain collective investment products (e,g., provision of pay-raise or incentives, exclusive promotion of sales of certain securities) from general customers only because sales commission ratio or collection commission ratio received by the securities company is higher than those from other investment funds which it deals with; provided that if there is a reasonable ground to believe that the discriminating effort to promote sales corresponds to benefits of customers, this provision is not applied to the extent that the object of sale is restricted to collective investment product of a single management company or differentiated sales promotion efforts are made.

(2) A securities company must not require, directly or indirectly, the management company to give securities trading orders to itself or to a third Party in return for the sales or collection of collective investment products. However, if the management company sells and offers the collective investment products after it has publicly announced in its prospectus that, if there are two or more securities companies offering best trading condition, it would select one taking into accounts the applicant companies sales or collection contribution and the securities company requests the asset management company to give trading orders as consideration of sale or offer based upon said announcement, this provision shall not be deemed to have been violated.

(3) A securities company must not charge unreasonably higher commission from a certain customer than others for the investment asset trades entrusted to itself in return for its sales or collection of collective investment product.

(4) A securities company must not conduct any of the following activities as in relation to the sales and collection of a specific collective investment product.

1.	Guarantee of the rate of return;

2.	A confirmation or suggestion of the rate of return; and

3.	Any claim or explanation that goes against the actual pay-off performance.

Chapter 6.

Financial Derivatives Business

§4-21. Opening an Account

(1) When a securities company, in handling financial derivatives under the applicable laws and regulations, intends to enter into transactions with general customers, the securities company must comply with the following:

1.	When opening an account for a financial derivatives transaction, a securities company must obtain a confirmation for such accounting opening from the derivatives business manager;

2.	A securities company must deliver the customers statements explaining the derivatives products at issue prior to the execution of the trades.

(2) The business manager of financial derivatives shall take actions necessary for the protection of customers taking into account the following factors upon receipt of the application for confirmation of opening an account pursuant to paragraph (1) above:

1.	Whether the customer applying for opening an account has basic knowledge necessary for derivatives trading (except when it is difficult to obtain relevant information from customer); and

2.	Existence of a business staff member who can provide investment consulting service to the customer holding relevant account and whether such business staff member is qualified for providing investment consulting service.

§4-22. Business Manager of Financial Derivatives

(1) A securities company must select qualified and capable employees and designate them as business manager of financial derivatives for each branch; provided that, if any business manager working at the head office or nearby branch may effectively supervise business operation for derivatives transactions at the relevant branch, one person may be designated as the sales manager for two or more branches.

(2) Business managers of financial derivatives must periodically and adequately supervise each of the followings regarding derivatives transactions with general customers in his/her branch on a regular basis in order to prevent any illegal act committed by a business staff member:

1.	Whether the contents of transaction is suitable for the investment objective of a customer;

2.	Whether the size and frequency of each types of derivatives transactions is adequate;

3.	Whether commission generated from an account is excessive;

4.	Size of the profits and losses, realized or unrealized, from an account

5.	Whether a position is over-concentrated

Chapter 7.

Execution of Securities Transactions

§4-23. Receipt of Order

(1) When a securities company receives an order from a customer, it must handle it in a prompt and accurate manner.

(2) When a securities company receives an order from a customer, the securities company must prepare documentary evidence of the contents of the order in paper and voice recording to evidence such customer's order and must retain this evidence.

§4-24. Computerized Order Handling

(1) Under Article 66-2 of the Decree, a securities company intending to receive orders from customers via computer or other similar electronic means, shall comply with all of the following subparagraphs:

1.	Upon receipt of an order, it shall confirm whether the person placing such order has been duly authorized to place such order;

2.	It shall make customer know of order handling process and execution of orders;

3.	It shall not disclose details of financial trading of a customer to a third Party.

(2) When a securities company computerizes transaction processes, it must make sure the system complies with the applicable rules and regulations.

(3) A securities company must establish reasonable measures to avoid any situation where the order for trading can not be executed due to a malfunction of its computer or communication systems.

§4-25. Best Execution

(1) When a securities company acts as a broker, intermediary or agent for customer orders, it must make adequate precaution and efforts to ensure that the order is executed at the most favorable trading condition to the customer in light of the then market price of the securities by comparing quotations from two or more dealers.

(2) When a securities company trades securities with its general customer as the counter party, it cannot offer trading condition unreasonable to the customer in light of the then market situation and a customers trading search cost. However, this principle is not applied in case where a securities company offers price unfavorable to customer than market price due to reasonable cause such as burdensome inventory and notifies in advance the then market price to customer concerned.

(3) When a securities company receives transaction order from the market, it must deliver the order to the market according to the contents and methods of the order with no hesitation. However, in case where all the following requirements are met, the securities company can change the methods of order (such as trading market, the timing of order delivery to the market and the method of the ask and bid); and it can combine it with other orders and execute it as a bundled order.

1.	There must be acceptable ground that changed transaction order is more effective for customer to meet the goal of transaction order.

2.	There should be prior consent, written or otherwise, from customer that the a securities company can change method of order or make blanket orders together with other orders for the purpose of best execution.

3.	The internal control of changes in method of placing orders or submitting blanket orders shall be properly implemented.

§4-26. Legitimate Transaction Order Placer

(1) A securities company can accept trading order only from those who owns transaction accounts. However, this provision is not applied in any of the following cases. However, this principle is not applied in case where a securities company accepts trading order from a person whom it believes to be a legitimate transaction order placer under this provision upon employing customary due care in performing its business (except for cases where it has known that the order placer was not a legitimate order placer).

1.	In case a customer designates an agent in writing at the opening of an account and the agent places an order

2.	In case a person can who can show that he or she has a legitimate right, as provided by a power of attorney, places an order

3.	In case a manager with discretionary powers, as designated by a discretionary account agreement, places an order

(2) If an account holder designates another person other than the account holder himself as an order placer, claimant of deposited assets or a person who is entitled to receive a notice with respect to one-account transaction, a securities company shall be notified in writing of entrustment with respect thereto from such account holder, provided that, if a securities company gives prior written notice to the account holder of its intent not to accept any entrustment in whole or in Part, it may refuse the instruction given by a person other than the account holder with respect to the transaction through one account.

Chapter 8.

Settlement of Accrued Receivables

§4-27. Prevention of Receivables Accruals

A securities company shall take preventive measures, such as having customers know the following subparagraphs well, lest receivables in relation to trading on consignment of securities (hereinafter referred to as "receivables in cash") other than those as prescribed in Article 2-2 of the Act and Article 2-3 subparagraph 5 of the Decree (hereinafter referred to as "trading on consignment in cash") and receivables from customer margins (hereinafter, "customer margin for futures and options") in relation to trading on consignment of securities as prescribed under Article 2-2 of the Act and Article 2-3 subparagraph 5 of the Decree (hereinafter, "futures and options trading") should be incurred:

1.	Matters concerning administration in the case of failure in payment of receivables in cash and customer margin for futures and options; and

2.	Matters concerning the restriction on receiving entrustment of orders and refusal thereof in the case of accrual of receivables from customers.

§4-28. Request for Additional Payment of Customer Margin for Futures and Options

A securities company shall, when any cause for additional collection of customer margin for futures and options occurs, request such customer to additionally pay such margin by the communication method, which is agreed in advance with such customer, and maintain any data proving the fact of such request and the details thereof.

§4-29. Appropriation of Receivables from Customers

(1) A securities company shall, when any customer fails to pay the purchase price in relation to trading on consignment in cash by the settlement deadline, dispose of part of such customers property equivalent to the receivables from such customer on the following day (in the case of purchase in foreign country, the day after) of such deadline for making-up thereof, in such manner as stipulated in the general terms and conditions for opening of trading account.

(2) A securities company shall, when any customer fails to pay the customer margin for futures and options by a deadline to be determined by such securities company, take necessary measures for securing such margin by covering of the open interest or disposal of substitute securities of such customer in such manner as stipulated in the business regulation of the KSE and the general terms and conditions for futures and options trading.

§4-30. Restriction on Receiving Orders

(1) A securities company may, when any customer falls under any of the following subparagraphs in executing a trade of securities with its customers, refuse or restrict the receipt of orders or withdrawal of customers property:

1.	Cases where such customer has incurred receivables in cash;

2.	Cases where such customer fails to pay the customer margin for futures and options by a deadline as agreed; or

3.	Cases where it is deemed that there should be any obstacle in money change in Korea and performance of settlement in a foreign market due to any unavoidable reason in relating to the processing of orders.

(2) In opening an account, a securities company shall notify the customer of the reasons for refusal of receiving orders as set forth under paragraph (1) above and Article 4-10 hereof.

Chapter 9.

Commissions, Payment, Incentives and Merit-based Payment

§4-31. Commissions

(1) A securities company must have in writing internal guidelines and procedures in determining its commissions and must comply with them.

(2) A securities company shall not discriminate customers where it calculates fees charged to an identical transaction conducted without reasonable cause (and where redemption is made, fees after redemption charges are deducted therefrom), in which case reasonable cause shall be applicable under any one of the following subparagraphs.

1.	In case a securities company computes differentiated commissions due to each of the following reasons:

a. Market situation when a transaction occurs;

b. Transaction-related costs;

c. Economic value of the expected service;

d. Difficulty of the service;

e. Complexity of the work;

f. Contributions of the relevant customer to the profit the securities company; and

g. Any other justifiable reasons deemed as proper in performing the business

2.	In case a securities company computes lower commission to other securities companies than to individual customers.

3.	In case a securities company applies lower commission to a Party in a strategic alliance. In this case, the securities company shall not purport to shift profits and losses.

(3) A securities company must issue a written, verbal or electronic notice to customers on the range of services offered in return for commission paid by customer prior to the start of the transactions.

(4) In case a securities company gives authorization to a business staff member to decide differentiated commission for each transaction, it must issue a notice to all customers who use services under the securities company's commission rate so decided that such commission rate will apply to all or Part of transactions. However, a securities company may not use such differentiated commission rates for the purpose of achieving any of the following goals:

1.	In order to compensate for any loss arising from securities transaction by customers; or

2.	In order to shift profits and losses.

§4-32. Restriction on Commission Distribution

A securities company must neither distribute nor refund commission received from customers or make a direct or indirect payment in relation to customer's transaction volume other than in the following cases.

1.	A securities company that works as a intermediary or agent for the customer order. In this case, a securities company must take necessary action in order to inform customer prior to the opening of the transaction that it distributes a Part of customer's commission to such agents and intermediaries.

2.	The Party who engages in securities business abroad as a subsidiary or a head office of the securities company, and who actually is deemed as the same business entity.

3.	A bank (including the post office; hereinafter the same) entrusted with business of opening securities accounts. However, there must be an acceptable basis that the bank will not offer any investment consulting to customers.

4.	A customer who is exempted from paying Part of commission under a deed with a securities company.

§4-33. Restriction on Merit-based Payment

(1) A securities company shall not agree on any prior contract with a customer to receive merit-based payment (which means payment that a securities company receives from a customer in return for its services which is based on investment profits. However, payment received in proportion to the size of deposited assets are not deemed as merit-based payment). However, this provision is not applied in case a securities company is trusted for investment under the law.

(2) A securities company shall not establish payment system for its business staff under which a business staff member encourages customers to make frequent or excessive trading for the gain of personal profit.

(3) The KSDA may set guidelines for business staff payment system necessary for the compliance by a securities company with the provision under paragraph (2). When a securities company establishes payment system according to the KSDA guidelines, it is considered that the company complies with the principles under paragraph (2).

Chapter 10.

Advertisement and Disclosure to General Public

§4-34. Internal Regulation on Advertisement

(1) When a securities company does advertise, it must establish and operate the standards and procedure for an internal regulation in order to confirm whether the securities company's advertisement complies with rules and regulations.

(2) The KSDA, when needed, can make a prior inspection of an advertisement to see whether an advertisement of a securities company complies with this principle, Article 4-35 or the standards for advertisement prescribed by the KSDA.

(3) A securities company must not, directly or indirectly, use in its business or advertise results of business performance assessment pursuant to Article 2-31 or the ratio of net worth to total capital for business as a means to compare the company with others.

§4-35. Establishment of Association's Principle on Advertisement

The KSDA can establish the principle on advertisement or other necessary principles that a securities company must honor in relation to the its advertisement.

§4-36. Provision of Information Relating to the Company Itself to Media Institutions

When a securities company provides information on the company itself or financial services offered by it to the media, the information shall not include any misstatement, assertion or forecast which lacks basis or is misleading.

§4-37. Providing of Information Relating to Investment in Securities

When a securities company makes a public announcement on market condition and investment in securities, it shall make an effort not to cause any misunderstanding by taking all of the followings into consideration:

1.	They must make sure if there is any possibility that the relevant information may cause unnecessary misunderstanding in the context.

2.	Level of knowledge and understanding of the audience

3.	Whether the transmission means of information can clearly deliver the relevant information in the light of complexity and specialty of the information

§4-38. Providing of Information Obtained from Third Party

(1) When a securities company uses any information obtained from a third-Party for the purpose of investment solicitation for customers, or cause any other person to use it, there must be a reasonable ground to deem that such information is reliable.

(2) A securities company shall establish and apply a written standard and procedure for internal control in order to comply with the provisions under paragraph (1).

Chapter 11.

Customer Agreements

§4-39. Scope of Applications

The provisions of this Chapter shall not apply to any customer agreement to be authorized by the supervisory authority concerned pursuant to the relevant laws and regulations, which is related to the customer agreements commonly used among those engaging in the securities business and the concurrent engagement in other businesses.

§4-40. Standard Customer Agreements

(1) The KSDA may formulate standard customer agreement which will be applicable in relation to the business of securities companies. In this case, any of the following shall not be contained in such agreement:

1.	Provisions of eliminating any legal responsibility incurred due to intentional or significant negligence of a securities company;

2.	Provisions of restricting the range of indemnity by any securities company, without a valid reason, or of transferring the risk to be undertaken by any securities company to customers;

3.	Provisions of having customers unjustly undertake the obligation of excessive indemnity;

4.	Provisions of restricting, without a valid reason, customers statutory right of rescission or right of rescission for the future, or of limiting the exercise thereof;

5.	Provisions which may give unfair disadvantage to customers by granting the right of rescission and the right of rescission for the future, which are not provided in the statutes or by lowering the requirement for exercising such statutory rights;

6.	Provisions which may give, in a contract for the purpose of continuously incurring claims and obligations, unfair disadvantage to customers by fixing the duration unreasonably long or short, or by allowing the extension or renewal of such duration;

7.	Provisions of eliminating or limiting, without a valid reason, customers rights to defend and or to set off provided in the statutes;

8.	Provisions of depriving acceleration granted to customers, without a valid reason;

9.	Provisions of giving disadvantage to customers by making unfair fiction on an expression of the opinion of securities companies and customers;

10.	Provisions which are difficult for customers to expect or understand in the light of the matters such as forms of concluding contracts;

11.	Provisions of restricting substantial rights to be included in the contract to the extent that it is difficult to attain the purpose of the contract; and

12.	Other provisions which are unfairly disadvantageous to customers.

(2) A securities company may, when there is a standard customer agreement in relating to its business, which is formulated by the KSDA, use such an agreement by modification insofar as it does not harm the nature of such form. In this case, the modified agreement shall be reported to the Governor through the KSDA at latest 10 business days prior to the expected implementation date.

§4-41. Establishment of Individual Customer Agreements

(1) A securities company shall, when intending to formulate or modify a separate customer agreement because any standard customer agreement is not available in relation to its business, report such customer agreement and related documents to the Governor, except the following cases, at latest 20 business days prior to the expected implementation date:

1.	Cases where such agreement should be modified due to the amendments of the statues or regulations; and

2.	Cases where such agreement should be modified for the convenience of doing business, which is not related to the rights or obligations of customers.

(2) A securities company shall, when intending to modify its customer agreement pursuant to paragraph (1)2, report the fact to the Governor one day prior to the expected implementation date.

(3) The Governor shall review as to whether the matters falling under each subparagraph of Article 4-40 paragraph (1) are included in such customer agreement, which is reported by a securities company pursuant to the provisions under paragraph (1) and Article 4-40 paragraph (2).

§4-42. Recommendation of Changes in Customer Agreements

(1) The Governor may, as a result of review of any customer agreement pursuant to Article 4-41(3), when judged that it is necessary to modify such customer agreement, recommended the modification thereof to the securities company concerned. When deemed necessary, he/she may recommend the modification of any customer agreement already used by other securities companies. In this case, when deemed necessary that the contents of any customer agreement will definitely infringe the rights or interests of customers, the Governor may issue an order to modify such customer agreement by attaching the reasons, in writing.

(2) The Governor shall notify the securities company concerned of his/her recommendation or order to modify any customer agreement pursuant to the provisions under paragraph (1) within 15 days of the receiving date of the report on such customer agreement pursuant to Article 4-41 paragraph (1). However, for the agreement reported pursuant to Article 4-40 paragraph (2), a notice shall be made to such securities company within five days after receiving such report.

§4-43. Report on Changes in Customer Agreements

(1) A securities company which has been recommended to modify its customer agreement pursuant to Article 4-42 paragraph (1) shall report to the Governor as to whether it will accept such recommendation within five business days of the recommendation date. However, this provision shall not apply to the case where the Governor otherwise determines the period.

(2) A securities company which has accepted the modification recommendation on any customer agreement pursuant to the provisions under paragraph (1) or which has received the order of modification of any customer agreement pursuant to Article 4-42 paragraph (1) shall report such modified agreement within five business days of the acceptance date of reporting on recommendation of such modification or the order issuing date for such modification.

§4-44. Entrustment of Affairs to Review Customer Agreements

(1) The Governor may entrust the KSDA with all or a Part of the affairs and powers stipulated in the following:

1.	Receipt of reporting of customer agreements pursuant to Article 4-40 paragraph (2), Article 4-41 and Article 4-43 paragraph (2);

2.	Review of customer agreements pursuant to Article 4-41 paragraph (3); and

3.	Recommendation on modification of customer agreements pursuant to Article 4-42 paragraph.

(2) The Governor may, when entrusting the KSDA with the affairs to review customer agreements, pursuant to the provisions under paragraph (1), determine the methods of and procedures for review of customer agreements and other standards necessary for the administration of entrusted affairs of the KSDA.

Chapter 12.

Standards for Internal Regulation

§4-45. Establishments and Application of Internal Regulation Standards

(1) A securities company shall comply with provisions as set forth in <Appendix 17> in establishing and applying internal control standard under Article 54-4 of the ACT and Article 37-4 of the Decree.

(2) A securities company should appoint a business manager for each branch office or for a group of branch offices to oversee the compliance of internal rules. When one person is carrying out such duty for two or more branch offices, the following conditions should be met.

1.	There should not be hindering factors for a single manager in supervising and monitoring the business conducts when the numbers of employees, business scale and contents, geographical condition of offices are taken into consideration.

2.	The manager in duty should work for any of the offices under his supervision on a full-time basis.

3.	The volume and quality of work the manager has to take care of should not exceed one person's supervisory capability.

Chapter 13.

Record Keeping and Management

§4-46. Record Keeping

(1) A securities company should keep and maintain records of matters listed in <Appendix 18> for three years or more (agreements and other records on the rights and obligations and important relationships should be kept for three years or more from the date of termination of the relevant rights and obligations and relationships) in the form of document, computer file or microfilm. However, this provision shall not apply to the case where other laws or regulations specify retention period otherwise.

(2) A securities company should establish adequate measures to prevent future alteration or forgery of the records under paragraph (1) and should be ready to submit the records within 3 business days upon inspection or examination by the FSS.

(3) At the customers request in writing for submission of the data in <Appendix 18> during the retention period defined under paragraph (1), the following data should be made available within 6 business days upon such customers written request; provided that if the requested data may not be submitted within such period due to an unavoidable reason, the reason for such failure and the date on which the data can be submitted should be notified to customers.

1.	Record materials on the customers own transactions;

2.	Record materials of past customer notifications; and

3.	Copies of declaration of intentions received by customers regarding securities business.

Chapter 14.

Supplementary Rules

§4-47. Limitation of Selling Securities Issued by a Securities Company

A securities company should not sell or recommend its general customers to buy subordinated bonds and stocks (including stock-related bonds such as convertible bonds) it has already issued or is expected to issue. Exceptions are as follows.

1.	When it has received the highest or the second highest credit rating from two or more credit rating agencies

2.	When a securities company, which is already listed or registered in the KSE or KOSDAQ, respectively, increases its capital by way of public offering.

§4-48. Prohibition of Setting up Franchise Business Units

A securities company should not set up office or other business units of which the securities company has no practical control when all of the following factors are taken into consideration.

1.	The regulation method and contents of the head office on business conduct and operation

2.	Independence in hiring system and its management

3.	Contents of and independence in performance and wage system

4.	The contents of contract between the employees of the units and head office

§4-49. Execution of Discretionary Transaction Contract

(1) A securities company shall, when it is vested with discretionary power in determining the quantity and price of securities and the trade timing of such securities, conclude with customers an agreement which contains the following subparagraphs:

1.	Scope of discretion;

2.	Duration of such agreement;

3.	Person in charge of administration of discretionary transaction;

4.	Method on alteration and termination of discretionary transaction agreement;

5.	Reversion of loss and gain arising from transactions to customers, and prohibition of compensation of loss or guarantee of profit; and

6.	Purport that other contents not contained in the agreement at the time of agreement should not be valid.

(2) Whether to include the quantity and price of securities and the trade timing of such securities, in whole or in Part, shall be clearly indicated in the scope of discretion under paragraph (1) 1.

(3) Any person in charge of administration of discretionary transaction under paragraph (1) 3 shall be designated from among the officers and staff members of business offices where the account concerned is opened.

§4-50. Management of Discretionary Transaction Account

(1) A securities company which has concluded a discretionary transaction agreement pursuant to Article 4-49 shall manage the discretionary transaction account distinct from a general account; when such agreement is terminated, it shall manage such account as a general account.

(2) A securities company is required to file with the Governor a discretionary transaction status as of the end of each month for each business office by the 10th day of the following month.

§4-51. Special Exceptions to Futures and Option Transaction

(1) A securities company shall report to the Governor the details of monthly futures and options transaction.

(2) The Governor may, when he/she deems that it is necessary for any securities company to make a report or file data in order to confirm the transaction status or whether to observe the relevant statutes in relation to futures and options transaction, request such securities company to report or file such information.

§4-52. Special Exceptions to Execution of Orders by Non-Member Firms

(1) A securities company, which is not a member of the KSE or the KSDA (hereinafter referred to as "non-member firm") shall, when receiving an order for the trading on the securities market or the KOSDAQ market from any customer, observe the provisions on receiving orders in the Business Regulation of the KSE or the Regulation on KOSDAQ Market Operation promulgated by the KSDA.

(2) Any customer may, when placing an order through a non-member firm, designate the member firm of the KSE or the KSDA who executes such order.

§4-53. Delegation of Detailed Matters

The Governor may determine the detailed provisions on the detailed matters:

1.	Detailed provisions on the opening of customers accounts, methods of and procedures for the handling of orders; and

2.	Other detailed provisions necessary for the implementation of the provisions in this Section.

PART V.

BUSINESS PRACTICE BY SECTOR

Chapter 1.

Credit Extension

Section 1.

General Provisions

§5-1. Purpose

(1) The purpose of this Chapter is to prescribe the necessary matters in relation to the ceiling on credit extension, collateral ratio and collection method to be applied when a securities company intends to lend money or securities to a customer in relation to securities pursuant to Article 49 paragraph (3) and Article 54 of the Act.

(2) The terms used in this Chapter shall have the same meanings given following :

1.	The term "stock subscription loan" refers to a loan of money required for acquisition through subscription of shares made available through public offering and secondary distribution or through new issuance by listed corporations or registered corporation.

2.	The term "margin transaction" refers to a transaction on the securities market or the KOSDAQ market whose receipt and delivery is settled by a customer (limited to natural person) who receives from a securities company a loan (hereinafter referred to as "margin transaction loan") in the case of buying and lent stocks (hereinafter referred to as "lent stock") in the case of selling.

3.	The term "loan for buying securities" refers to a loan, secured by securities as a collateral, extended by a securities company to a customer intending to buy securities.

4.	The term "secured loan by deposited securities" refers to a loan, secured by deposited securities as a collateral, extended by a securities company to a customer having a trading account at the securities company.

5.	The term "margin requirement" refers to money collateral provided, in advance, by a customer, in connection with margin transaction, in order to receive a margin transaction loan or lent stock from a securities company.

6.	The term "substitute securities" refers to securities to be substituted for cash when a securities company requests a deposit from a customer in relation to credit extension, as prescribed in the Business Regulation of the KSE.

7.	The term "price of substitute securities" refers to the price at which substitute securities are assessed as stipulated in the Business Regulation of the KSE.

§5-2. Exceptions to Collateral Assessment

(1) For the assessment of collateral in this Chapter, when stocks are provided as a collateral as of the allotment date of rights offering or bonus issue, the rights concerned shall be deemed the collateral during the following period:

1.	Bonus issue: from the date following the base date to the previous date of listing of next shares;

2.	Preemptive right in the case of rights offering : from the date following the base date to the closing date of subscription of rights issue;

3.	New shares subscribed at the time of rights offering: from the date following the closing date of subscription of rights issue to the previous date of listing of new shares.

(2) The assessment price of the rights pursuant to the provisions under paragraph (1) shall be stipulated by the KSE

Section 2.

Stock Subscription Loan

§5-3. Loan Ceiling

The ceiling on stock subscription loan shall be determined by a securities company, within the acquisition value of the securities to be acquired by a subscriber through subscription.

§5-4. Collection of Collateral

(1) Every securities company shall, when extending a stock subscription loan, collect collateral for the loan according to the ratio specified by such company.

(2) The collateral collected pursuant to the provisions under paragraph (1) shall be the securities concerned. However, when such securities are not delivered, the payment receipt (including the receipt of subscription margin) may be substituted for it by the time of delivery of such securities.

(3) Any securities company shall, when the total collateral value becomes short of the ratio pursuant to the provisions under paragraph (1), collect additional collateral, without delay.

(4) The additional collateral under paragraph (3) shall be collected only with cash or substitute securities.

§5-5. Assessment Price of Collateral

The price of securities to be acquired as a collateral in extending stock subscription loans shall be assessed as follows:

1.	For the securities acquired through subscription, it shall be the acquisition price thereof; however, when such securities are listed or registered, it shall be the closing price of the previous day;

2.	For the substitute securities, it shall be the price of substitute securities.

§5-6. Exercise of Collateral Right

(1) Any securities company shall request the redemption of stock subscription loan from a customer before its due date. If the redemption is not made on the due date, it shall dispose of the collateral concerned on the next duty at the quotation Participating in determination of the opening price on the securities market or the KOSDAQ market, for the purpose of the redemption of such loan.

(2) Any securities company may, in case the additional collateral pursuant to Article 5-4 paragraphs (3) and (4) is not provided, realize the redemption of loan in such manner as under paragraph (1).

(3) Proceeds from the disposition of collateral pursuant to the provisions under paragraphs (1) and (2) shall be appropriated to pay for all expense for disposition, overdue interest, interest, and principal of loan in such order.

Section 3.

Margin Transaction Loan and Lent Stocks

§5-7. Opening of Margin Transaction Account

(1) Any securities company shall, upon receiving an order for margin transaction from a customer, open an account for margin transaction.

(2) In opening an account for margin transaction under paragraph (1), any securities company shall collect an agreement for account opening for margin transaction containing the name and signature or seal of the customer himself, a copy of resident registration certificate (or a copy of certificate with which to confirm the name and resident registration number) or passport, and one million won deposit money for account opening.

(3) No securities company shall use the deposit money for account opening for the purpose other than for the collection of credits pursuant to Article 5-12 .

§5-8. Margin Issues

(1) Any securities eligible for margin transaction shall be the stocks listed on the securities market or registered on the KOSDAQ market. However, a securities company shall extend neither margin transaction loan nor stock loan for margin transaction with its own shares.

(2) The FSC may suspend new trading of the margin issues under paragraph (1) in the case of rapid fluctuation in margin transactions or other cases where it is deemed necessary.

(3) Any securities company shall suspend any new margin transaction when margin issues fall under any of the following subparagraphs;

1.	Where the company concerned has been designated as a matter of subject to auditing or supervision by the Korea Stock Exchange

2.	Cases where the KSE has taken the measures of deposit prior to placing order or of deposit prior to receipt and delivery;

3.	Where the company concerned has been designated as a matter of subject to auditing and supervision, or has been designated as precautionary for investment

§5-9. Margin Transaction Ceiling

(1) The FSC may establish a ceiling on margin transactions for each margin issue in the case of rapid fluctuation in margin transactions or other crises where it is deemed necessary.

(2) The FSC may, in the case of occurrence of natural calamity, war, accident, drastic changes in economic condition, and any emergency corresponding thereto, order every securities company to suspend margin transaction.

§5-10. Margin Requirement

(1) Every securities company shall, when receiving a margin transaction, collect the margin requirement of no less than the amount of money, multiplying the quantity of customer's order by a designated price (if not available, the market price) and margin requirement ratio to be determined by such securities company.

(2) The FSC may establish the minimum of the margin requirement ratio pursuant to the provision under paragraph (1) in the case of rapid fluctuation in margin transactions or other cases where it is deemed necessary.

(3) Every securities company may, in establishing its margin requirement ratios, determine the ratios at which substitute securities may be used in selling and buying respectively.

(4) Every securities company shall, when receiving margin transactions, allocate the cash portion of the margin requirement, a1ter subtracting the substitute securities portion, to the purchase price of the securities concerned for the customer.

§5-11. Collection of Collateral

(1) Every securities company shall collect, as a collateral, the stocks purchased in the case of extending credit for margin transaction and the amount sold in the case of lending stocks for margin transaction.

(2) Every securities company shall immediately collect additional collateral, when the total collateral value (including the margin requirement and the substitute securities) falls below the ratio determined by such securities company (hereinafter referred to as "minimum collateral ratio") with respect to the outstanding amount of margin transaction loan or market price of such lent stocks due to the fluctuation in the prices of the stocks purchased through credit extension for margin transaction, the stocks sold by lending stocks for margin transaction, or the substitute securities.

(3) Article 5-4 paragraphs (3) and (4) shall apply mutatis mutandis to the additional collateral under paragraph (2).

(4) In calculating the minimum collateral ratio under paragraph (8), the assessment va1ue of the stocks purchased by margin transaction loan or sold by lending stocks shall be the closing price of the day (if not possible for assessment, the closing price of the previous day), and the assessment value of substitute securities shall be the price of such substitute securities.

(5) In calculating the minimum collateral ratio under paragraph (4), in case more than two margin transactions exist in the same margin transaction account, they may be merged .

§5-12. Forced Redemption

(1) Every securities company shall request a customer to redeem the margin transaction loan or lent stocks before the due date. When such customer fails to redeem it by the due date, it shall collect credit by disposing of the collateral on the next duty of the due date according to the method as under Article 5-13 . However, these provisions shall not apply to the case where the disposition of collateral on the securities market or the KOSDAQ market is not possible on account of worsening market conditions, etc,, and thus such securities company has determined the disposition method by specifying the target credit to be disposed and reported the method to the Governor.

(2) Notwithstanding the provisions of Chapter 2 of this Part, when the disposition of collateral pursuant to the provisions under paragraph (1)p is made outside the securities market or the KOSDAQ market, the transaction price and settlement method shall be based on the agreement between such securities company and debtor.

(3) Every securities company may, when the total amount of collateral value falls short of the ratio as under Article 5-11 paragraph (2), request the customer concerned to provide additional collateral. In case the additional collateral is not provided within four days from the date of the request (excluding the day of request and holidays according to the Regulation on Holidays of Government and Public Offices), the appropriation for credit collection may be made in such manner as under paragraphs(1) and (2).

§5-13. Method of Forced Redemption

(1) Every securities company may, when falling under any of the following cases, settle the outstanding balance of the margin transaction or clear the debt of a margin trader by arbitrarily disposing at the quotation on securities market or the KOSDAQ market the margin requirement or the collateral securities, and other deposited cash and securities in the order of the list according to the quantity required :

1.	Cases where an additional provision of collateral is requested and yet is not provided by the date of payment;

2.	Cases where the payment of interest, trading fee, and taxes is requested and yet is not made by the date of payment.

(2) Article 5-6 paragraph (3) shall apply mutatis mutandis to the case where the sales proceeds of collateral are to be used for the collection of claims in accordance with Article 5-12 paragraphs (1) and (3).

§5-14. Redemption

The redemption through sale of margin transaction loan and lent stocks shall be made on the settlement day of such trade, while the redemption through cash or stock certificates shall be made on the day when the customer asks for the reimbursement (by 16:00, but 12:00 on Saturday).

§5-15. Prohibited Practices

No securities company shall perform the following practices against a customer with margin transaction loan or lent stocks whose due date has expired :

1.	Receiving a trading order of securities for the purpose other than the redemption of the margin transaction concerned (except receiving a trading order from a customer who is certain to redeem the principal, etc, when such customer has contracted a trace for the redemption of margin transaction);

2.	Withdrawal of cash or securities (except the withdrawal of the amount exceeding the minimum collateral ratio after contracting a trade for the redemption).

§5-16. Filing of Data

(1) Every securities company shall file with the KSDA every day the data on the margin transaction status of the day and others materials regarding the margin transaction in such manner as to be determined by the KSDA.

(2) The KSDA shall, when any securities company violates the ceiling on margin transaction under Article 5-9 paragraph (1), report the details of such violation to the Governor, without delay.

Section 4.

Loan for Buying Securities

§5-17. Collection of Collateral

(1) Every securities company shall, when intending to extend a loan to buy securities, collect collateral for such loan according to the ratio determined by such securities company.

(2) The collateral collected by every securities company pursuant to the provisions under paragraph (1) shall be limited to the purchased securities and the substitute securities concerned .

(3) Every securities company shall, when the total collateral value becomes short of the ratio pursuant to the provisions under paragraph (1), collect additional collateral, without delay.

(4) The additional collateral under paragraph (3) shall be collected in application of Article 5-4 paragraphs (3) and (4).

§5-18. Assessment Value of Collateral

When assessing the collateral securities, the assessment value of such securities shall be their closing price of the previous day, and the assessment value of the substitute securities shall be the price of substitute securities.

§5-19. Exercise of Security Right

Article 5-6 shall apply mutatis mutandis to the exercise of security right.

Section 5.

Loan Secured by Deposited Securities

§5-20. Collection of Collateral

(1) Every securities company sha11, when intending to extend a loan secured by deposited securities, collect collateral for the loan according to the ratio determined by such securities company.

(2) The collateral to be collected by a securities company pursuant to the provisions under paragraph (1) shall be limited to listed stocks, listed bonds, or registered stocks that have been deposited for more than one month in the account of the customer intending to obtain a loan .

§5-21. Exercise of Security Right, Assessed Value of Collateral

(1) Article 5-6 and Article 5-17 paragraphs (3) and (4) shall apply mutatis mutandis to the loan secured by deposited securities.

(2) When assessing the collateral securities, the assessed value of securities shall be their closing price of the previous day, and the assessed value of the substitute securities shall be the price of substitute securities. The assessed value of registered stocks shall be the price to be assessed in such manner as stipulated in the Regulation on KOSDAQ Market Operation.

Section 6.

Supplementary Provisions

§5-22. Report on Interest Rate of Credit Extension

Every securities company sha1l, when determining or changing the interest rate for credit extension, interest rate on overdue loans, minimum collateral ratio, margin transaction deposit ratio, or substituting ratio of substitute securities for selling or buying, report such fact to the Governor without delay.

§5-23. Sanction against Securities Company

The FSC may suspend credit extension, in whole or in Part, or take other necessary measures against any securities company that violates this Regulation.

§5-24. Enforcement Rules

The Governor may formulate the detailed provisions necessary for the enforcement of this Regulation, such as handling method of preemptive rights related to margin transaction.

Chapter 2.

OTC Trading of Securities

Section 1.

General Provisions

§5-25. Purpose

The purpose of this Chapter is to prescribe the business method, other necessary matters thereof, and the trading method of repurchase agreement when any securities company conduct securities trading outside the securities market (hereinafter referred to as "over-the-counter trading" or "OTC trading") or intermediation thereof pursuant to Article 54 and Article 194 of the Act and Article 37 and Article 84-27 of the Decree.

§5-26. Definitions

(1) The term "over-the-counter market" or "OTC market" refers to the market other than the securities market and the KOSDAQ market.

(2)＿Deletedａ

(3) The term "odd lot" refers to any listed stock or registered stock less than the trading unit as stipulated in the Business Regulation of the KSE and the Regulation on KOSDAQ market operation of the KSDA.

(4) The term "unlisted and non-registered stock" refers to a stock other than those issued by any listed corporation or registered corporation.

(5) The term "quotation system" refers to a computer system installed by any securities company as stipulated in Article 84-27 paragraph (5) of the Decree for the intermediation of unlisted and non-registered stocks.

(6) The term "bond trading with repurchase agreement" (hereinafter referred to as "RP trading") in this Chapter refers to the trading falling under any of the following subparagraphs:

1.	Selling bonds on the condition that the seller agrees to repurchase such bonds at an agreed price at a stated time (hereinafter referred to as "RP");

2.	Purchasing bonds on the condition that the buyer agrees to resell such bonds at an agreed price at a stated time (hereinafter referred to as "reverse RP") .

(7) The term "RP trading between institutions" in this Chapter refers to trading of bonds with RP between the following institutions:

1.	Banks;

2.	Merchant banking corporations under the Merchant Banking Corporation Act;

3.	Mutual savings and finance companies and their federation under the Mutual Savings and Finance Company Act;

4.	Agricultural cooperatives and their federation under the Agricultural Cooperatives Act;

5.	Fisheries cooperatives and their federation under the Fisheries cooperatives Act;

6.	Credit unions and their Federation under the Credit Union Act

7.	Community credit cooperatives and their federation under the Community Credit Cooperatives Act;

8.	Trust companies under the Trust Business Act;

9.	Management companies under the Securities Investment Trust Business Act;

10.	Securities companies and securities finance companies under the Securities and Exchange Act;

11.	Securities investment companies under the Securities Investment Company Act;

12.	Postal agencies under the Postal Savings and Insurance Act;

13.	Insurers under the Insurance Business Act;

14.	Credit specialized financial companies under the Credit-Specialized financial Business Act;

15.	Venture capital companies under the Act on Establishment Support for Small Business Firms;

16.	Futures trading companies under the Futures Trading Act;

17.	Fund for Management of Public Funds under the Act on Fund for Management of Public Funds;

18.	National Investment Fund under the National Investment Fund Act;

19.	National Pension Fund under the National Pension Fund Act;

20.	Government Employees Pension Corporation under the Government Employees Pension Act;

21.	Korea Teachers Pension under the Teachers Pension Act; and

22.	Foreigners corresponding to Subparagraphs 1 through 21

(8) The term "RP trading for customers" in this Chapter refers to the trading of bonds under RP to be executed by any of the following corporations (hereinafter referred to as "securities company") with corporations other than those under paragraph (7) or with individuals:

1.	Securities companies engaging in the business prescribed in Article 28 paragraph (2) subparagraph 1 of the Act, and

2.	Banks and merchant banking corporations under the Merchant Banking Corporation Act, which have obtained the permission for the business prescribed in Article 28 paragraph (2) subparagraph 1 of the Act.

(9) The term "multi-credit ratings" in this Chapter refers to credit rating of any CP issuer evaluated by two or more credit rating agencies (by one credit rating agency in the event of any unavoidable reasons, such as business suspension of credit rating agencies).

Section 2.

OTC Trading of Bonds

§5-27. Method of Settlement

(1) The settlement of OTC bond trading shall be executed within 15 business days (including the day of contract) from the date on which the trading contract thereof is made, upon consultation between the seller and the buyer.

(2) The settlement of registered bonds under the National Bond Act and the Bond Registration Act may be substituted with the registration completion notice or registration certificate; in this case, documents necessary for the change of registration prescribed in the National Bond Act and the Bond Registration Act shall be attached thereto.

(3) With respect to the settlement of OTC bond trading between any securities company and any institution under Article 5-26 paragraph (7), the bonds and the proceeds shall be simultaneously settled by any of the following methods. However, these provisions shall not apply to the cases otherwise determined by the KSD:

1.	In the case of bonds, transfer between the accounts in the customer's account book prepared and maintained by the KSD;

2.	In the case of proceeds, fund transfer through the Bank of Korea or banks.

§5-28. Short Sale of Bonds

Any person who has obtained the permission for the securities business prescribed in Article 28 paragraph (2) subparagraph 1 of the Act is not allowed to, in the case of short sale of bonds, to make quotations below the price under any of the following subparagraphs

1.	In case the price contracted on the securities market or the OTC market immediately prior to such short sale is available, such price;

2.	In case the price contracted on the securities market or the OTC market immediately prior to such short sale is not available, the price, published by the KSDA, of the bond of the same class whose rating is the same, which is contracted on the securities market or the OTC market immediately prior to such short sale.

§5-29. Contracted Unit Price

The contracted unit price of the bonds whose yield quotation is posted pursuant to Article 5-30 paragraph (1) shrill be the price determined by discounting the face value of 10,000 won with the compound yield whose quotation is posted; while the contracted unit price of bonds prescribed in Article 5-30 paragraph (2) subparagraph 2 shall be determined by the price to be discounted by compound yield which is agreed between any securities company and any customer, referring to the reference yield prescribed in Article 5-30 paragraph (1). In this case, the contracted unit price shall be calculated by the formula to be determined by the KSDA, but fractions smaller than a won shall be rounded off.

§5-30. Posting of Yield Quotation

(1) Any securities company may post the quotation of purchase yield and sale yield, considering successively the reference yields under the following, by class or time to maturity of bonds:

1.	The quoted yield of the preceding day on the securities market by class or time to maturity to which such bonds belong, or the yield published by the KSDA pursuant to Article 5-31 paragraph (2) (hereinafter referred to as "the KSDA-published yield") or the yield announced by bond price rating agencies designated by the Governor;

2.	The average yield of the preceding day quoted on the securities market by class to which such bonds belong, or the KSDA-published yield; and

3.	The yield quoted on the securities market within seven business days prior to the trading day, or the last yield from among the KSDA-published yields.

(2) Every securities company shall, when there is an order from a customer for the following bonds, satisfy such order within the ceiling per customer to be determined by such securities company:

1.	Bonds whose yield quotation is posted pursuant to the provisions under paragraph (1) and

2.	Bonds which has been sold to any customer by such securities company.

(3) Any securities company intending to engage in the bond trading pursuant to the provisions under paragraph s(1) and (2) shall declare to the Governor an operation manual for such business by describing the class of bonds subject to posting the quotation of trading yield and the ceiling of purchase or sale per customer. These provisions shall also apply to the case of any modification of the contents of such manual.

(4) The Governor may, in case an operation manual declared by a securities company pursuant to the provisions under paragraph (3) complies with the standards determined by the Governor, designate such securities company as a bond dealer. He may provide supports necessary for the smooth performance of such dealer's business.

§5-31. Publication of OTC Trading Yield

(1) The KSDA shall systematically administer and disclose the bond issuance information, such as issuance terms and conditions necessary for the execution of the OTC trading by any securities company, or customer.

(2) The KSDA shall publish the bond trading yields on the OTC market so that any securities company, etc, or customer may refer to them for the OTC trading.

§5-32. Obligation to Administer Retail Bond Trading

(1) The head office and all branches of a securities company shall set up an special counter for the bond trading by posting officers and employees who have a professional knowledge of bonds for the administration of retail bonds (referring to the bonds whose face value or contract value is less than five million won; the same hereinafter).

(2) Any securities company shall, when receiving an order of retail bonds from a customer, satisfy such order. However, these provisions shall not apply to the bonds stipulated in Article 36 subparagraph 2 of the Business Regulation formulated by the KSE.

Section 3.

RP Trading

§5-33. Securities Eligible for Trading

The objects of RP trading for customers shall be the securities in the following. However, convertible bonds, exchangeable bonds, and bonds with warrant in the period of exercise of conversion rights, exchange rights, and subscription rights shall be excluded.:

1.	Bonds prescribed in Article 2 paragraph (1) subparagraphs 1 to 3 of the Act;

2.	Corporate bonds either publicly offered or distributed by stock listed corporations, association registered corporations or registered corporations prescribed under Article 3 of the Act, and guaranteed bonds prescribed under Article 3 paragraph (1) of the Decree.

§5-34. Corporations Eligible for Trading

Any securities company may engage in the RP trading for customers in accordance with the provisions of this Section. However, any institution under Article 5-26 paragraph (8) subparagraph 2 shall not engage in the business of RP purchase for customers.

§5-35. Unit Price of Contract

(1) The unit price of a reverse RP for customers of any securities company shall, on the basis of the face value of 10,000 won of the bond concerned, be calculated by a method of compound interest discount by applying the yield provided by at least two bond price rating agencies designated by the Governor to be bond quoted in the OTC market shall be a reference. However, bonds not applicable for the average yield for valuation shall be referenced to the yield to which such bonds correspond over the counter.

(2) The unit price of a RP for customers of any securities company shall be determined, in won unit, within the range between the amount to be calculated by the method under paragraph (1) and the rounded-off amount in 100 won unit of above-mentioned amount.

(3) Repurchase or resale price of RP or reverse RP shall be calculated by the following method, but fractions smaller than a won shall be rounded off.

Repurchase (or resale) price = RP (or reverse RP) price x (1 + contract days / 365 x interest rate of RP (or reverse RP))

§5-36. Date of Repurchase or Resale

(1) Every securities company, etc, shall determine the date of repurchase or resale in conducting RP trading for customers.

(2) Every bank shall determine the date of repurchase, which should exceed at least 15 days after the selling date of RP; in case the repurchase is requested by the counter Party within 14 days from such selling date, zero percent shall be applied until up to seven days, and the ordinary deposit interest rate of bank shall be applied after the lapse of eight days.

§5-37. Custody, etc. of Securities Sold

(1) Any securities company, etc, may, in the case of selling RPs for customers, when it is entrusted or requested by its counter party, keep in custody and administer the sold bonds; in this case, the interest earned during the period of custody shall not be paid to such counter party until the repurchase date.

(2) Any securities company, etc, may, when deemed necessary for selling RPs for customers, substitute other bonds with the bonds in custody pursuant to the provisions under paragraph (1), within an extent which may not affect the performance of the repurchase. However, when its business office (including the business department of the head office; the same hereinafter in this section) administers the RPs sold through its business offices (including business department of its head office; the same hereinafter) for each business office, customers and issue, its business office may omit the entry of the details of substituted issue in accounting books and slips such as passbook, ledger, etc, and instead indicate such sold issue as "RP bond".

(3) Any securities company may sell the bonds purchased under the reverse RP as the bonds under the RP; in this case, the date of repurchase under the RP shall be within the date of resale under the reverse RP.

(4) Every securities company, etc, shall deposit all RPs under its administration and keep them in custody with the KSD, by clearly indicating that such bonds are deposited by its customers.

§5-38. Settlement Method of RP Trading between Institutions

Article 5-27 paragraph (3) shall apply mutatis mutandis to the settlement of RP trading through any broker (including inter-dealer brokers under Article 7-1 ; the same hereinafter in this section) between the institutions under Article 5-26 paragraph (7).

§5-39. Service Agreement

(1) The KSDA shall, when formulating a standard service agreement for RP trading business, report such fact to the Governor for his review

(2) The Governor shall, when receiving the report under paragraph (1), make notice of the result after completing the review thereof within 15 days from the reporting date. In case there is a request by the Governor for amendment or correction, or in case the KSDA intends to correct or supplement the reported contents, the reporting date of such amendment or correction shall be deemed the reported date.

§5-40. Status Report

(1) Every securities company shall report to the association the status of RP trading for customers by the 10th day of the following month.

(2) Any broker under Article 5-38 shall report to the KSDA the intermediation details per case, such as interest rate of RP trading immediately after the execution thereof, and the KSDA shall disclose such information through computer terminals.

(3) Any securities company may formulate the provisions necessary for the administration of RP trading business pursuant to this Regulation; in this case, such securities company, etc, shall report to the Governor such contents without delay.

Section 4.

OTC Trading of Odd Lot

§5-41. Trading Method

Odd lot shall be traded on the OTC market. However, in the case pursuant to Article 5-45(1), it may be sold on the securities market.

§5-42. Purchase of Odd Lot through Agent

(1) Any securities company may administer the affairs related to the purchase of odd lot, such as entrustment of sell orders, payment of sales value, delivery of trading report, etc, for the odd lot which has been preferentially distributed to the subscribers of peoples' shares (including publicly-offered stocks for savings by farming and fishing households) living in the district of' "si" or "gun" where there is no business offices of securities companies, by concluding an agency contract with an institution which can handle subscription affairs of people's shares.

(2) The following matters shall be stipulated in the contract under paragraph (1) :

1.	Method of purchase through agent;

2.	Application of purchase price;

3.	Settlement of purchase value;

4.	Payment of agent commission; and

5.	Other matters necessary for purchase through an agent

(3) No securities company shall, in concluding the contracts under paragraph (1), enter into an agent contract with the institutions with whom another securities company has already entered into an agent contract.

§5-43. Contracted Unit Price

The contracted unit price of odd lot in the OTC trading shall be the closing price of the securities quoted on the securities market one day after placing order by customers (excluding Saturdays and public holidays) (hereinafter referred to as "the closing price one day after placing order"). However, in the following cases, a securities company and a customer may determine the price upon mutual agreement:

1.	Cases where the closing price one day after placing order of such securities has not been quoted on the securities market;

2.	Cases where a customer expresses his intention not to accept the closing price one day after placing order as a trading price; and

3.	Cases where any securities company has expressed its intention to refuse the purchase or sale of such odd lot because the closing price one day after placing the order of such securities rises up or drops to the price fluctuation limit on the securities market.

§5-44. Method of Settlement

The settlement of OTC trading of odd lot shall be made on the day (excluding Saturdays and public holidays) after the contracted unit price is fixed pursuant to Article 5-43. However, in case an agency contract was concluded between any securities company and the institution which administers subscription affairs of people's shares pursuant to Article 5-42, the settlement shall be made in accordance with the provisions stipulated in such agency contract; in case an agreement between a securities company and a customer was made pursuant to Article 5-43p, the settlement may be made on the day when the contracted unit price is fixed.

§5-45. Opening of Joint Account

(1) Any securities company may, when inevitable for the administration of trading of odd lot, open a joint account for odd lot trading for each business office.

(2) The joint account under paragraph (1) shall be maintained in order to clearly distinct the contents of trading by customer. In this case, a securities company shall obtain an agreement on the use of such account with the consent of its customers.

§5-46. Obligation to Process Odd Lot Trading

(1) The head office and all branches of any securities company shall set up a counter and process odd lot trading.

(2) Every securities company shall post the method of trading and settlement and other necessary matters at the odd lot trading counter or business place in order to help customer's decision on investment; when it receives odd lot trading order from a customer, it shall process it preferentially.

Section 5.

OTC Trading of Unlisted and Non-Registered Stock

§5-47. Operation of Quotation System

(1) The stock whose quotation is mediated through the quotation system shall satisfy the following requirements, and such stock shall be designated by a securities company or the KSDA, upon application of the issuer of such stock.

1.	The issuer (including corporations not subject to external audit pursuant to Article 2 of the Act on External Audit of Corporations) should have obtained an unqualified or qualified opinion from a CPA, in accordance with the Act on External Audit of Corporations;

2.	Such stock is eligible for deposition with the KSD and has no restriction on transfer; and

3.	The issuer should entrust the transfer business to a transfer agent.

(2) The KSDA may, when any stock which was designated as eligible for quotation intermediation through the quotation system, falls under any of the following cases revoke such designation :

1.	Cases where the company which has applied for designation applies for revocation of such designation;

2.	Cases where such issuer fails to maintain the requirements under paragraph (1);

3.	Cases where the company which has applied for the designation fails to perform the obligation of disclosure under Article 5-48 ; or

4.	Cases where there is no trading record through the quotation system for the last one year.

§5-48. Obligation of Securities Companies Applying for Designation

"In such manner as to be determined by the FSC" prescribed in Article 84-27 paragraph (5) subparagraph 3 of the Decree refers to a disclosure through the quotation system.

§5-49. Settlement Method

(1) Every securities company shall, when a trade is executed at the quotation disclosed through the quotation system, immediately notify the KSD of the details of executed trading through the quotation system.

(2) The KSD shall, when receiving the notice of the details of executed trade pursuant to the provisions under paragraph (1), settle such trade on the third business day (excluding Saturdays) from the contract date, after confirmation thereof, by the account transfer between the accounts in the depositor's account book prepared and maintained by the KSD. These provisions shall not apply to the case as otherwise determined by the KSD.

Section 6.

Trading and Brokerage of CPs

§5-50. Application of Multi-Credit Ratings

(1) Multi-credit ratings shall be those rated on the basis of the adjusted financial statements as a result of CPA audit (hereinafter referred to as "adjusted financial statements") of the latest fiscal year of a CP issuer.

(2) Notwithstanding the provisions under paragraph (1), in case any CP issuer fails to obtain multi-credit ratings evaluated on the basis of the adjusted financial statements of the latest fiscal year until the lapse of six months from the balance sheet dale, the multi-credit ratings based on the adjusted financial statements of the preceding fiscal year may be applied thereto.

§5-51. Restrictions on CP Handling Methods

(1) Every securities company shall, when dealing or brokering CPs, comply with the method of without recourse dealing or brokering for which such securities company has no obligation, and shall not deliver a memorandum, or a guarantee which promises the payment of such CPs or commit any acts for guarantee, regardless of the title.

(2) No securities company is allowed to conduct fund transactions through CPs, such as RP trading of CPs;

§5-52.＿Deletedａ

Section 7.

Supplementary Provisions

§5-53. Trading Place

Every securities company, etc shall conduct any OTC trading in its business place. However, these provisions shall not apply to the case of Article 5-42.

§5-54. Periodic Report

(1) Every securities company shall prepare the status of brokerage of OTC trading or trading of bonds as of the end of each month and report to the KSDA by the 5th day or the following month; the KSDA shall report it to the Governor by the 10th day of the same month.

(2) The provisions under paragraph (1) shall apply mutatis mutandis to the case of inter-dealer brokers under the provisions of Chapter 1 of Part Vll.

§5-55. Detailed Provisions

(1) The KSDA shall determine the following provisions in relation to the implementation of the provisions of this Chapter:

1.	Provisions concerning the calculation formula of contracted unit price of bond necessary for the OTC trading of bond, the disclosure of bond trading yields, the administration and disclosure of bond issuance information;

2.	Provisions concerning CP credit ratings, disclosure of yields, etc, in relation to the CP handling by securities companies; and

3.	Provisions concerning the procedure for designation of the stocks eligible for mediation through the quotation system and revocation of such designation in relation to the quotation intermediation business of unlisted and non-registered stocks; those concerning the disclosure of an issuer; and those concerning the method of posting the quotations, the method of contracts for trades, the method of operation of the quotation system.

(2) Provisions necessary for the settlement of unlisted and non-registered stocks shall be otherwise formulated by the KSD.

(3) In case the KSDA formulates the provisions necessary for the implementation of this Chapter pursuant to the provisions under paragraph (1) or the KSD formulates the provisions necessary for the implementation thereof pursuant to the provisions under paragraph (2), the power to receive the declarations pursuant to Article 164 paragraph (1) and Article 175 of the Act shall be delegated to the Governor.

Chapter 3.

Securities Savings

§5-56. Purpose

(1) The purpose of the provisions of this Chapter is to prescribe the matters necessary for engaging in the securities savings business by securities companies (hereinafter referred to as "savings") pursuant to Article 50 of the Act and Article 35-16 of the Decree

(2) The terms used in this Chapter shall have the same meanings given to them in the following :

1.	The term "cumulative savings" refers to a securities company taking money deposit from customer in advance in exchange for securities, or a securities company purchasing securities in the KOSDAQ for customer for retainment thereafter.

2.	The term "savings by installment plan" means that any securities company sells securities to savings account holders by the method of sale in installment and keep such securities in its custody.

3.	The term "savings property" refers to the property which savings account holders own through the operation of savings money (referring to cash actually paid by savings account holders with the intention of savings).

4.	The term "securities savings with tax benefit" refers to the savings to which tax benefits apply under the Act on Regulation of Tax Reduction and Exemption (hereinafter referred to as "the Tax Reduction Act") ; the term "ordinary securities savings" refers to the savings other than the securities savings with tax benefit.

§5-57. Opening of Accounts

(1) Every securities company shall open an account, upon receiving an individual application from the person intending to conclude a savings contract. However, in the case of the securities savings with tax benefit, it may open an account through a business proprietors or in the name of such proprietor in accordance with the agreement form.

(2) In the case of opening an account in the name of the proprietor pursuant to the provisions under paragraph (1)p, a securities company shall administrate the savings property for each savings account holder (deposits by savings account holder, securities by savings account holder).

§5-58. Fees

Any securities company may, in relation to administration of savings business, collect a savings fee. However, in case a securities company and a savings account holder directly buy and sell the savings securities and include the fee in such trading price, a savings fee shall not be separately collected.

§5-59. Termination and Cancellation of Contract

(1) Any securities company may, when any of the following causes occurs, terminate the savings contract. However, in the case under subparagraphs 1 through 3, it shall notify a savings account holder of the fact, in advance:

1.	Cases where a savings account holder violates material matters in the service agreement;

2.	Cases where a securities company is unable to engage in the savings business;

3.	Cases where an account holder of savings by installment plan fails to pay his installment money for no less than three months; and

4.	Cases where an account holder of savings by installment plan demands for the return of his savings property arid does not express his opinion to continue such savings.

(2) Every securities company shall, when falling under any of the following subparagraphs, have a savings account holder continue to make savings by transferring his savings property and savings lodger to another securities company, depending upon the will of such account holder. In this case, such savings account shall be deemed to have been opened at such securities company, and shall not be detrimental to the interests resulting from cancellation of the contract:

1.	Cases where such securities company no longer engages in the savings business;

2.	Cases where any business office in which an account is opened discontinues or suspends its business; and

3.	Cases where savings business is no longer provided at the business office where such account is opened.

§5-60. Securities Eligible for Savings

(1) Securities eligible for savings shall be those prescribed in each subparagraph of Article 2 paragraph (1) of the Act.

(2) The Governor may, within the scope of the securities under paragraph (1) differently designate the securities eligible for savings for the purpose of tax benefit under the Tax Reduction Act, etc or for the protection of investors.

§5-61. Detailed Provisions

The Governor may determine the method of and procedures for conducting the securities savings business of securities companies and the detailed provisions necessary for the implementation of the provisions of this Chapter.

Chapter 4.

Concurrently-Conducting and Incidental Business

Section 1.

General Provisions

§5-62. Purpose

(1) The purpose of the provisions of this Chapter is to prescribe the matters necessary for conducting concurrent businesses for securities companies pursuant to Article 54 of the Act and Article 36-2, Article 37 and Article 84-28 of the Decree

(2) The terms used in this Chapter shall have the same meanings given to them in the following:

1.	The term "wrap account" refers to an account opened at a securities company by a customer in relation to the business pursuant to Article 36-2 paragraph (1) subparagraph 2 and Article 36-2 paragraph (1) subparagraph 3 of the Decree

2.	The term 'incidental business' refers to the business Prescribed in Article 36-2 paragraph (4) of the Decree.

Section 2.

Concurrently Conducting Businesses

§5-63. Wrap Account

(1) Every securities company shall deliver to its wrap account customers the document pursuant to Article 41-16 paragraph (1) of the Decree by the contract date.

(2) The KSDA may determine the methods of deposited property's valuation calculation of fees, and evaluation of investment performance, and other matters necessary for making securities companies observe the statutes in administering their wrap account business.

(3) Any securities company administering the wrap account business may file its business report collectively with the business report pursuant to Article 47 of the Act; notwithstanding Article 7 of the Regulation on Supervision of Investment Advisory Companies, such securities company may declare the modified contents in the following manner:

1.	The provisions of Part Ⅵ shall apply to the matters stipulated in Article 7 paragraph (1) subparagraphs 1 to 3 and 6 of the Regulation on Supervision of Investment Advisory Companies;

2.	The duties of receipt of declaration for modification concerning the matters stipulated in Article 7 paragraph (1) subparagraph 4 of the Regulation on Supervision of Investment Advisory Companies shall be delegated to the KSDA. In this case, the KSDA shall report to the Governor the modification details of the matters Stipulated in such provisions and the status thereon by the 5th day of each month; and

3.	The modification details with respect to the matters stipulated in Article 7 paragraph (1) subparagraph 5 of the Regulation on Supervision of Investment Advisory Companies shall be declared to the Governor in such manner as stipulated in such provisions by the 5th day of the following month. In this case, when such securities company uses the standard service agreement pursuant to the provisions of Chapter 11 of Part Ⅳ or has declared its service agreement, it shall be deemed declared.

(4) "The bonds with lower than investment grade ratings determined by the FSC" in the Article 36-2 paragraph (1) subparagraph 3 item c of the Decree refers to the bonds evaluated from BB+ to B- by one or more credit rating agency(ies). However, it shall be at least B- when evaluated by two or more credit rating agencies.

□ 5-63-2. OTC Financial Derivatives Transaction Business

(1) A securities company conducting OTC financial derivatives transaction business shall include the following matters in the product guidelines for submission to the Governor pursuant to Article 84-28 paragraph (5) of the Decree.

1.	Matters concerning summary of the product such as specifications of basic products, fundamental assets, date of contract, maturity, charges of contract, exercise of rights, etc.

2.	Matters concerning type and value of collateral

3.	Income/loss structure following changes in prices of fundamental assets during the term of contract

4.	Matters concerning the source of valuation method and materials used to valuate fundamental assets

5.	Matters concerning the price of option premium traded between parties to transaction in connection with OTC fundamental derivatives transaction

6.	Matters concerning specifications, time and method of notification of OTC financial dervatives transactions during the term of contract

(2) A securities company conducting OTC financial derivatives transaction business shall include the following matters when notifying of risks and etc. pursuant to the provisions of Article 84-28 paragraph (7) of the Decree.

1.	Matters including product guidelines pursuant to paragraph (1)

2.	Liquidity risk caused by provision of collateral to counter party to transaction

3.	Statement that OTC financial derivatives may not be counter traded for early termination of contract

Section 3.

Incidental Businesses

§5-64. Declaration of Incidental Business

(1) Every securities company shall, when intending to commence any incidental business, declare the fact to the FSC seven days prior to the commencement date of such incidental business, together with the business plan in which the following matters should be described or included:

1.	Objectives to engage in such incidental business;

2.	Operation manual of such incidental business, and

3.	In the case of the business cooperation with a third Party or in case any registration or declaration is required under other statutes, related contract documents or those certifying such registration and declaration.

(2) Every securities company shall, when intending to modify the operation manual under paragraph (1) subparagraph 2, file with the Governor a new operation manual at latest seven days prior to the modification date.

(3) Every securities company shall, when intending to terminate the incidental business, declare to the FSC the fact seven days prior to the date of scheduled termination thereof. In this case, if the incidental business is for financial transactions, a written document containing the measures to protect customers in relation to such incidental business shall be attached to such declaration.

§5-65. Trading and Brokerage of CDs

(1)＿Deletedａ

(2) Every securities company is required to disclose the trading volume by maturity, yield of CDs traded on the preceding day (if not available, the last trading day) at its business office.

§5-66. Method of Brokerage of Loan Transactions

(1) Any securities company may mediate any loan transaction of securities by the following manner:

1.	Direct intermediation between the Parties concerned; or

2.	Indirect intermediation through a loan transaction between respective Parties and such securities company.

(2)＿Deletedａ

§5-67. Collection of Collateral

Every securities company shall, when conducting lending securities business or the brokerage and agency business for loan transactions of securities pursuant to Article 5-66 paragraph (1) subparagraph 2, collect the securities prescribed under Article 2 paragraph (1) of the Act or cash as a collateral.

§5-68. Administration of Collateral

(1) Any securities company may, when conducting the brokerage and agency business for loan transactions of securities pursuant to Article 5-66, administer the collateral provided by any borrower.

(2) Any securities company may entrust the KSD, any securities finance company, any trust company under the Trust Business Act, or any financial institution conducting trust business or other securities companies with the administration of the collateral under paragraph (1).

§5-69. Delivery of Securities Eligible for Loan Transaction

(1) Every securities company shall, when conducting the brokerage business of securities or the brokerage and agency business for loan transactions of securities pursuant to Article 5-66, perform the delivery of the securities eligible for loan transaction by the following methods in exchange for collateral at the same time. However, this shall not apply where loan transactions are conducted by and between non-resident foreigners pursuant to the provisions of Article 5-66 paragraph (1) subparagraph 1;

1.	Transfer between accounts in the depositors' account book of the KSD or in the customers' account book of such securities company in the case where the Securities eligible for loan transaction and collateralized securities are those designated by the KSD as those eligible for deposition; and

2.	Fund transfer through the Bank of Korea, any bank or any securities company in the case of collateral in cash.

(2) The KSD may determine the detailed provisions necessary for the implementation of the Provisions under paragraph (1).

§5-70. Disclosure of Loan Transaction Details

(1) Every securities company shall disclose through the KSDA, details of securities and transactions such as issues, quantities, etc, of loan transaction securities contracted for conducting such brokerage and agency business on the day.

(2) The KSDA shall report to the Governor the loan transaction details pursuant to the provisions under paragraph (1) as of the end of each month by the 10th day of the following month.

§5-71. Delegation of Power

The affairs of receipt of declaration documents to be filed with the FSC as under Article 5-64 paragraphs (1) and (3) may be delegated to the Governor.

Chapter 5.

Trading of Foreign Currency Securities

§5-72. Purpose

(1) The purpose of the provisions of this Chapter is, when any securities company conducts the trading of foreign currency securities of general investors pursuant to Article 7- 33 subparagraph 2 of the Foreign Exchange Transaction Regulation, to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Article 54 of the Act, Article 37 of the Decree, the Act on Establishment of financial Supervisory Organizations, Article 7-35 of the Foreign Exchange Transaction Regulation.

(2) The terms used in this Chapter shall have the same meanings given to them in the following :

1.	The term "foreign currency securities" refers to securities prescribed in Article 3 paragraph (1) subparagraph 8 of the Foreign Exchange Transaction Act.

2.	The term "customer" refers to any general investor pursuant to Article 7-36 subparagraph 2 of the Foreign Exchange Transaction Regulation.

3.	The term "securities company" refers to a securities company which has obtained a permission for the business prescribed in Article 28 paragraph (2) subparagraph 2 of the Act.

4.	The term "foreign securities company" refers to a foreign securities company (including overseas subsidiary, branch, and business office of a domestic securities company; the same hereinafter) which is located in the country where such trading of foreign currency securities is conducted .

5.	The term "foreign securities market" refers to any foreign securities exchange in which trading of foreign currency securities is executed or an OTC market which is publicly certified within the foreign country concerned, which is similar to the KOSDAQ market or any organized market corresponding thereto.

6.	The term "foreign market trading" refers to a trading conducted by any securities company, upon receiving orders from its customers, as a brokers or intermediary, or agent (hereinafter referred to as "brokering") in foreign securities markets; or Subscription to new foreign currency securities issued in a foreign country by customers through a securities company.

7.	The term "service agency for foreign currency securities price" refers to any communication service agency, such as Reuters, which provides the price information of foreign currency securities at the local time through the terminals and systems for overseas communication.

8.	The term domestic OTC trading" refers to cross trade, or trading by placement of orders or intermediary of foreign currency securities in Korea between any securities company and any customer.

9.	The term "foreign custody institution" refers to a foreign securities depository or a foreign financial institution designated by the KSD for the purpose of keeping in custody the customer's deposited foreign currency securities in a foreign country.

10.	The term "foreign currency deposit account" refers to a foreign currency deposit account established by a customer a securities company or the KSD at a domestic foreign exchange bank and foreign custody institution in accordance with Article 7-38 of the Foreign Exchange Transaction Regulation for the deposition, remittance, receipt of foreign currencies related to the trading of foreign currency securities or the exercise of rights granted to a foreign currency securities by customers.

11.	The term "off-shore fund of securities company" refers to a fund established overseas which a securities company owns no less than 10/100 of the total issued stocks or beneficiary certificates of such fund.

12.	The term "foreign beneficiary certificate" refers to a foreign investment trust certificate domestically sold by a foreign management company through a selling agent pursuant to Article 42-4 of the Securities Investment Trust Business Act, Article 22-3 of the Enforcement Decree of such Act, and Article 7-37 of the Foreign Exchange Transaction Regulation.

§5-73. Foreign Currency Securities Eligible for Trading

(1)"The foreign currency securities to be determined by the FSC" stipulated in Article 7-37 paragraph (2) subparagraph 1 of the Foreign Exchange Transaction Regulation refer to those in the following :

1.	Securities, DRs, and beneficiary certificates whose legal nature is similar to the securities prescribed in Article 2 paragraph (1) subparagraphs 1 to 6 of the Act, DRs, from among those listed or to be listed on overseas securities market;

2.	Negotiable CDs issued by foreign financial institutions;

3.	CPs issued by foreign enterprises;

4.	Convertible bonds, bonds with warrants, exchangeable bonds, DRs, and other securities or certificates similar thereto issued abroad by domestic enterprises, which do not fall under subparagraph 1;

5.	Public bonds other than those that fall under subparagraph 1, which foreign governments or foreign public organizations which have standing; and

6.	Foreign beneficiary certificates.

(2) Notwithstanding the provisions under paragraph (1), the securities issued by fund of any securities company shall be excluded from those eligible for trading by securities companies.

(3) The provisions of this Chapter shall not apply to the case where any securities company sells foreign beneficiary certificates under paragraph (1) subparagraph 6.

§5-74. Receiving of Orders

(1) Every securities company shall, in order to receive orders from customers for the trading in a foreign securities market, establish an account, distinct from its dealing account, at a foreign securities company or a foreign financial institution (hereinafter referred to as "foreign securities company"). However, these provisions shall not apply to the case where it intends to execute the trading of foreign currency securities under Article 5-73 paragraph (1) subparagraphs 2 to 5.

(2) Every securities company shall, when receiving orders of trading of foreign currency securities from a customers observe the following provisions:

1.	It should confirm whether the foreign currency securities which are received from a customer for trading are those eligible for investment as under Article 5-73;

2.	It should, when such order from a customer is executed through any foreign securities company, clearly notify such foreign securities company of the issue, quantity, price, code numbers of issues used by such foreign securities market, and the fact that the settlement is to be processed by the KSD;

3.	It should apply the provisions concerning the contents and methods stipulated in the Business Regulation of the KSE to the case of receiving orders. However, the provisions related to the orders of foreign currency securities, such as the classes of securities and the code numbers of issues used by such foreign securities market may be separately described.

§5-75. Settlement

Any securities company may pay the foreign currency deposited in the foreign currency deposit account in the name of a customer as a settlement money for the domestic OTC trading of foreign currency securities. However, when it is impossible to directly settle with such foreign currency, it shall convert such foreign currency to the domestic currency for the payment of settlement money.

§5-76. Settlement Date

(1) The settlement date in Korea of foreign currency securities executed in a foreign country shall be the date, counting the next business date (hereinafter referred to as "contract date") after placing an order, on which the settlement period in the foreign securities market where the securities concerned has been traded or the settlement after the contract date on the foreign securities market where its time zone is the same as that in the domestic market, the settlement date on the foreign securities market may be the settlement date in Korea.

(2) The settlement date of foreign currency securities in the case of domestic OTC trading shall be the date on which an order is placed.

§5-77. Notice of Contract

Every securities company shall, when confirming the contract contents of foreign currency securities trading through a foreign securities company or foreign custody institution, notify the customer concerned, the KSD, and the foreign exchange bank concerned of the information on the contract, such as the payment or reception of proceeds, settlement amount in foreign currency, in such manner as to be determined by the Governor. However, the contract contents of the purchase for such customer may be notified after the money change:

§5-78. Concentration of Deposit of Foreign Currency Securities

(1) Every securities company shall establish a depositor's account of foreign currency securities in the KSD, and concentrate deposits of customer's foreign currency securities in the foreign custody institution designated by the KSD, However, when the KSD is unable to designate a foreign custody institution due to the statutes or custom of the foreign country concerned, such securities may be differently kept in custody, It shall, when intending to mate deposit with the KSD of the foreign currency securities acquired with its own property, do it distinct from those of customers.

(2) Any person to be qualified to become a foreign custody institution pursuant to the provisions of Part .I shall be any institution which satisfies any of the following requirements :

1.	Any foreign securities depository or clearing house established for the purpose of performing the functions similar to the KSD, which should be supervised by the government or regulatory authority of such country;

2.	Any institution established for the purpose of performing the international depository or clearing service, which is invested by such institutions as under subparagraph 1;

3.	Any foreign financial institution which satisfies the following requirements:

a. Any international securities custody institution whose custody volume is more than US$10 billion;

b. Any institution with sufficient experience in international custody business which is quite familiar with the securities market where it is located; and

c. Any institution to provide custody service internationally or throughout any continent.

4.	Any institution, other than those under Subparagraphs 1 through 3, for which the KSD deems it necessary for specified deposition and custody in a specific country.

§5-79. Notice of Exercise of Rights

(1) Every securities company shall, when receiving the notice of the details on the exercise of right of customer's foreign currency securities from the KSD, notify such customer of such details, without delay.

(2) Every securities company shall, when needing a customers' decision or direction for the exercise of right of acquired foreign currency securities, such as voting right or exorcise of preemptive right at a shareholder meeting, bondholder meeting, beneficiary meeting, confirm such customer as to whether such customer will exercise such right and notify the KSD of the result.

(3) Every securities company shall, when having received through the KSD any notice or data delivered from an issuer, maintain them for three years from receiving date for customer's perusal.

§5-80. Money Exchange, Remittance or Receipt

(1) Any securities company may, for handling the affairs of customer's foreign currency securities investment, exchange money through the foreign currency deposit account in its own came, established distinct from the resident account in its own name.

(2) Any securities company may handle the change of domestic currency to any foreign currency and the remittance of foreign currency following the trading of customer's foreign currency securities and the exercise of rights, either on behalf of such customer with the power of attorney therefrom, or through its foreign currency deposit account under paragraph (1).

(3) Every securities company shall, when intending to remit or receive any foreign currency to and from a foreign country in relation to the trading of customer's foreign currency securities and the exercise of rights, pass through the foreign currency deposit account in the name of the KSD established in a foreign custody institution. However, when any customer intends to subscribe to any foreign currency securities newly issued in a foreign country, the securities company concerned may directly remit foreign currency in its own name to the receiving bank in a foreign country.

(4) Every securities company shall, when having remitted foreign currency pursuant to the provisions under paragraph (3), notify the KSD of such fact, without delay, However, these provisions shall not apply to the case as stipulated in the proviso of the same paragraph

(5) Any securities company may deposit foreign currency received in relation to the trading of customer's foreign currency securities and the exercise of rights in the foreign currency deposit account in the name of the KSD pursuant to the provisions under paragraph (3).

§5-81. Detailed Provisions

(1) The following matters in regards to the settlement following the trading and acquisition of foreign currency securities, deposition, custody, and exercise of rights shall be determined by the KSD:

1.	Matters on the method of deposition and custody of foreign currency securities;

2.	Matters on administration of foreign currency deposited in the foreign deposit account in the name of the KSD;

3.	Matters on the procedures for exercise of rights;

4.	Matters on commission rate of deposition and the method of collection thereof; and

5.	Other matters deemed necessary for concentrated deposition of foreign currency securities and exercise of rights thereof.

(2) The Governor may determine the detailed provisions necessary for the implementation of the provisions of this Chapter.

PART VI.

REPORT BY SECURITIES COMPANIES AND GRANTING OF APPROVAL

§6-1. Purpose

(1) The purpose of the provisions in this Part is to prescribe the matters necessary for the enforcement of the pertinent affairs falling under the jurisdiction of the FSC pursuant to Article 28-2, Article 36, Article 42 and Article 54 of the Act, Article 15-7, Article 31, Article 35, Article 37 and Article 37-5 of the Decree, Article 24 of the Restructuring Act, and Article 6 of the Enforcement Decree of the same Act.

(2) The terms used in this Part shall have the same meanings given to them in the following : .

1.	The term "business office" refers to a place which is equipped with physical space and facilities necessary for the business of a securities company, and where its business is conducted continuously and repeatedly.

2.	The term "business suspension" of a business office means that the business operation of a business office is temporarily suspended for the period up to one year.

3.	The term "relocation" of a business office means that a business office is relocated within the same district or to neighboring district which is an administrative unit of' "ku", "si", or "kun" of Seoul Special City and metropolitan cities.

4.	The term "change of office type" means that an office having a type in the following changes its type to another one:

a. Head office: an office where the principal business of a securities company is conducted, and which is registered as a head office pursuant to the Commercial Code;

b. Branch: an office, other than the head office, where an independent business activities are conducted, and which is a registered as a branch under the Commercial Code; and

c. Business office: an office, regardless of its title, which conducts its business, not independently, but under the control of its head office or branch (including unmanned office equipped with cash dispensers, etc,),

5.	The term "officer" refers to a director or an auditor who is appointed by shareholder meeting or the court. However, it refers to the representative in case of a branch of a foreign securities company.

6.	The term "branch of foreign securities company" refers to any branch or business office which has obtained the permission for establishment pursuant to Article 28-2 of the Act

7.	The term "overseas branch", "overseas liaison office", "overseas subsidiary," and "overseas affiliate" refers to those as defined in Chapter 5 of Part ll.

§6-2. Matters to be Reported

(1) Every securities company shall, when any of the following causes occurs, report the fact to the FSC within seven business days from the date of occurrence:

1.	Suspension, reopen, or discontinuance of the securities business;

2.	Relocation of its head office;

3.	Appointment and dismissal of officers and compliance officers;

4.	Change in the large shareholder prescribed in Article 36 subparagraph 3 of the Act and the largest shareholder prescribed in Article 54-5 paragraph (4) subparagraph 2 of the Act;

5.	Change of the company name;

6.	Occurrence of causes for dissolution:

7.	Cases falling under Article 31 paragraph (1) subparagraphs 6 to 11 of the Decree; and

8.	Cases where it intends to directly conduct the securities business in a foreign country.

(2) Every securities company shall, when any of the following causes occurs, report the fact to the FSC by the fifth day of the following month after the date of occurrence:

1.	Establishment of any branch or business office, and suspension, reopen, or discontinuance of business operation thereof; and

2.	Relocation, change of office type of denomination of a branch and business office.

(3) Every foreign exchange business handling securities company shall, when intending to establish or abolish its domestic office which handles the foreign exchange business or relocate such office, report to the FSC such fact within seven days from the date of such change.

§6-3. Matters to be Reported on Overseas Subsidiaries, etc.

(1) Every securities company shall, when any of the following causes occurs to its overseas subsidiary, overseas affiliate, overseas branch, and overseas liaison office, report the fact to the FSC within seven business days from the date of its occurrence:

1.	Establishment of such office, suspension, reopen, or discontinuance of business operation ;

2.	Relocation, changes in trade name or denomination, or reappointment of representative;

3.	Establishment of a daughter firm or branch (limited to overseas subsidiaries);

4.	Change in the affairs engaged in;

5.	Change in equity investment or business fund, or assignment of management; and

6.	Notice of examination or investigation result from the government of the host country or the securities supervisory authority thereof.

(2) Every securities company shall, when any of the following causes occurs to its overseas subsidiary or overseas branch, report the fact to the FSC without delay:

1.	Suspension of business, or revocation of permission or registration.

2.	Mergers or assignment of business in whole or in Part;

3.	Nonpayment or occurrence of any accident corresponding thereto;

4.	Resolution of dissolution;

5.	Application for commencement of bankruptcy or composition procedure; and

6.	Occurrence of any securities scandal related to any overseas affairs or occurrence of an important legal action.

(3) The Governor may, in order to induce overseas subsidiaries, etc of securities companies to sound business activities, have his subordinates confirm the matters related to management on the spot and give guidance thereafter.

§6-4. Exceptions to Matters to be Reported by Branch of Foreign Securities Company

(1) Every branch of a foreign securities company shall, when any of the following causes occurs to its head office, report the fact to the FSC within seven business days from the date of occurrence:

1.	Change in company name or reappointment of representative;

2.	Relocation;

3.	Merger or change in the largest shareholder;

4.	Assignment of business in whole or in Part;

5.	Occurrence of important legal action; and

6.	Disciplinary action by the securities supervisory authority or judiciary authorities of the country where it is located.

(2) Every branch of a foreign securities company shall, when any of the following causes occurs to its head office, report the fact to the FSC without delay:

1.	Suspension of business in whole, or revocation of permission or registration;

2.	Nonpayment or occurrence of any accident corresponding thereto;

3.	Resolution of dissolution;

4.	Application for commencement of bankruptcy or composition procedure; and

5.	Occurrence of any other important matters related to the protection of investors.

§6-5. Matters to be Reported by Domestic Liaison Office of Foreign Securities Company

(1) Every domestic liaison office of a foreign securities company shall, when any of the following causes occurs to its head office, report the fact to the FSC within seven business days from the date of occurrence:

1.	Establishment, closure or relocation of such domestic liaison office; and

2.	Change in denomination of such domestic liaison orifice.

§6-6. Approval for Trading by Officers and Employees

(1) The FSC shall, when intending to grant the approval for the trading by officers and employees of securities companies pursuant to Article 35 subparagraph 7 of the Decree, grant such approval only in the case where such securities trading should not damage the protection of investors or fair trading order considering the following subparagraphs:

1.	Purpose and time of trading;

2.	Class and quantity of the securities for such trading; and

3.	Trading method

(2) Notwithstanding the provisions under paragraph (1), when any officer or employee of a securities company conducts any of the following transactions, such transaction shall be deemed to have been approved by the FSC:

1.	Cases where such person, after the acquisition of equity bonds, such as convertible bonds, bonds with warrant, and exchangeable bonds, which were publicly offered or distributed, acquires stocks through the exercise of rights such as request for conversion, or disposes of such acquired stocks;

2.	Cases where the stocks under the name of the ESOA are traded among ESOA members;

3.	Cases where such person acquires stocks by subscription to forfeited stocks or disposes of such acquired stocks; and

4.	Cases which the Governor determines where such person acquires stocks by becoming a depositor of securities savings with tax benefits, or disposes of such acquired stocks.

(3) The provisions under paragraph s(1) and (2) shall apply mutatis mutandis to the officers and employees of the KSE and the KSDA, who are corresponding to the officers and employees of securities companies in trading securities under the Act.

§6-7. Approval for Equity Investment

The FSC may, in granting the approval for equity investment by any securities company pursuant to Article 24 of the Restructuring Act, delegate such approval duties to the Governor if such equity investment satisfies the following requirements:

1.	The net capital ratio of such securities company should not fall below 150/100 due to such equity investment;

2.	There should be no other financial institutions intending to obtain the approval for equity investment than such securities company; and

3.	The equity investment amount should be less than 1 billion won or less than 1/100 of the capital of such securities company, In this case, the capital shall be calculated in such manner as stipulated in Article 2-61 paragraph (4).

§6-8. Delegation of Power

(1) Any matters related to report, declaration or application to be filed with the FSC and the Governor pursuant to the provisions of this Part may be filed in writing or in the form of electronic data, However, the matters to be filed pursuant to Article 6-7 shall be filed in writing .

(2) The FSC shall delegate to the Governor its power regarding the receipt of reports to be filed with the FSC pursuant to the provisions of this Part and the approval for securities trading by officers and employees of securities companies.

(3) The Governor may determine the detailed provisions necessary for the implementation of the provisions of this Part.

PART VII.

MAINTENANCE OF ORDER IN SECURITIES MARKET

Chapter 1.

Inter-dealer Broker

§7-1. Purpose

The purpose of the provisions of this Chapter is to prescribe the matters necessary for the supervision of the affairs of securities companies conducting the brokerage business of bond (hereinafter referred to as "inter-dealer broker") pursuant to Article 14 subparagraph 5 and Article 84-27 paragraph (6) of the Decree.

§7-2. Business Method

Any inter-dealer broker may, when necessary, conduct its brokerage business of bonds between the persons who have obtained the permission for the business falling under Article 2 paragraph (8) subparagraph 1 of the Act (hereinafter referred to as "dealer") by the method of selling and buying through its own account.

§7-3. Approval for Business Regulation

Every inter-dealer broker shall formulate its Business Regulation in which the following matters should be included, and obtain the approval therefor from the Governor. These provision shall apply mutatis mutandis to the case of modification or repealing thereof

1.	Method of brokerage application;

2.	Method of cancellation and correction of brokerage application;

3.	Principle and method of contracting;

4.	Method of correction of trading with error;

5.	Notice method of contract details;

6.	Method of execution of contracts;

7.	Method of preparation and maintenance of record, and disclosure; and

8.	Other matters deemed necessary by such inter-dealer broker for the brokerage of bond trading.

§7-4. Prohibition of Divulgence of Confidential Information

Every inter-dealer broker shall neither provide nor divulge any information concerning any dealer who has applied for the brokerage of bond trading or who has concluded a bond trading contract thereafter to any third Party, without consent of such dealer or any justifiable reason.

Chapter 2.

Securities Trading by Foreigners

§7-5. Purpose

(1) The purpose of the provisions of this Chapter is to prescribe the matters necessary for the securities trading by foreigners pursuant to Article 203 of the Act and Article 87-2 of the Decree .

(2) The terms used in this Chapter shall have the same meanings given to them in the following :

1.	The term "foreigner" refers to an individual who holds foreign nationality, having neither his address nor place of abode for more than six months in Korea, and a foreign corporation pursuant to Article 2 paragraph (16) of the Act.

2.	The term "foreigner under national treatment" refers to any foreigner in the following. However, non-residents falling under Article 10 paragraph (2) subparagraphs 1, 2 and 6 of the Enforcement Decree of the Foreign Exchange Transaction Act shall be excluded :

a. Any person who works in domestic business office or other representative office or who engages in business activities in Korea; and

b. Any foreign corporation whose main office is located in Korea; or domestic branch, liaison office, sub branch or any form of office of a foreign corporation.

3.	The term "direct investment" means that any foreigner owns stocks pursuant to Article 2 paragraph (1) subparagraph 4 item a of the Act on Promotion of Foreigners' Investment.

4.	The term "stock investment" refers to the acquisition of any stock by the method other than the direct investment by foreigners.

5.	The term "DR" refers to a receipt for the new stocks and treasury stocks of a domestic corporation held in Korea as underlying securities, which is issued by an overseas depository institution in a foreign country

6.	The term "DR of trading stock" refers to a receipt for the stocks in trading issued by a domestic corporation held in Korea as underlying securities, which is issued by an overseas depository institution in a foreign country.

7.	The term "overseas securities" refers to convertible bonds, bonds with warrant, exchangeable bonds, DRs, DRs of trading stock, and other documents or certificates similar thereto.

8.	The term "financial institution" refers to any institution as prescribed in Article 38 of the Act on Establishment of Financial Supervisory Organizations.

9.	"Investment group" means foreigners (limited to foreign juridical persons) who manage multiple investments for foreigners in accordance with statutes or contracts.

§7-6. Acquisition Limit

(1) No foreigner shall acquire the stocks of public corporations pursuant to Article 199 paragraph (2) of the Act (hereinafter referred to as "public corporation") for his own account, regardless of the title thereof, in excess of the acquisition limits prescribed in the following:

1.	Acquisition limit by issue per foreigner: the limit prescribed in the Articles of Incorporation of the corporation concerned ; and

2.	Acquisition limit by issue for all foreigners: 40/100 of the total issued shares of such issue.

(2) Any foreigner may, in any of the following cases, acquire the stocks of public corporations in excess of the acquisition limits under paragraph (1) :

1.	Cases where any foreigner acquires stocks by direct investment;

2.	Cases where any overseas depository institution acquires underlying stocks in relation to the issuance of DRs or DRs of trading stock;

3.	Cases where any Korean national becomes a foreigner;

4.	Cases where any foreigner under national treatment loses his qualification for national treatment;

5.	Cases where any owner of overseas securities acquires stocks through the exercise of rights;

6.	Cases where any owner of convertible bonds, bonds with warrant, and exchangeable bonds acquires stocks through the exercise of rights;

7.	Cases where any foreigner acquires stocks through the exercise of rights as a shareholder;

8.	Cases where any foreigner acquires stocks through inheritance, gift, or testamentary gift;

9.	Cases where any foreign corporation acquires stocks by merger;

10.	Other cases deemed by the Governor, which are unavoidable, such as exercise of rights, etc,

(3) In case other statutes otherwise restrict the acquisition of stocks by foreigners, such acquisition shall be governed by such statutes.

(4) The FSC may, when it deems necessary for the public interest or for the stabilization of securities market and industrial policy, otherwise determine the acquisition limit by industry sector or issue.

(5) No foreigner shall acquire, by the method of trade, bonds with warrants of the issue whose acquisition limit pursuant to the provisions under paragraph s(1). and (3) is fully utilized as of the acquisition date.

(6) Any foreigner who has acquired voting stocks in excess of the acquisition limit per foreigner pursuant to the provisions under paragraph (2)3 through 10 shall sell such excess portion within three months from the acquisition date.

§7-6-2 Ceiling on Acquisition Pertaining to Stock Option

(1) A foreigner may exceed acquisition limit notwithstanding the provisions of Article 7-6 paragraphs (1) and (3) to the extent stocks are acquired by exercise of call option or put option allocation, at which time the foreigner shall dispose of the excess until the next day (or the next business day if holiday; the same hereinafter) after exercising the stock option. Where the foreigner does not dispose of the excess until ten minutes before the closing of the KSE, securities company shall dispose of the excess through a competitive auction under uniform price after the KSE is closed.

(2) Where a foreigner becomes applicable under paragraph (1), securities company shall calculate and notify the foreigner of the amount to be disposed of by person under the following formula without delay.

Amount of disposition by category and foreigner = Number of stocks acquired by exercise of call option or put option allocation × Required foreigner disposition ratio

In this case, disposition volume by category and foreigner shall be rounded off by the unit of minimum market transaction.

(3) Required foreigner disposition ratio of the formula under paragraph (2) refers to the figures disclosed by the Governor on the date of exercise of stock option calculated by category.

Required foreigner disposition ratio = [ Number of shares acquired by exercise of call option or put option allocation - Marginal quantity of overall ceiling on foreign investment in the category concerned [ Calculated figures with the exclusion of differences in the number of stocks as a result of exercise of stock option or rights allocation after the closure of the KSE on the date of exercise of stock option] ] ÷ Number of shares acquired by exercise of call option or put option allocation for the category concerned.

In this case, required foreigner disposition ratio shall be rounded to the fifth decimal point.

(4) A foreigner may not acquire the issues concerned through the electronic over-the-counter securities brokerage company before the required foreigner disposition ratios are disclosed on the date of exercise of stock option pursuant to the provisions under Article 3.

(5) A foreigner may, where he or she shall deliver shares due to exercise of call option or put option allocation, acquire stocks until the day after the exercise of equity option, notwithstanding the provisions of  Article 7-6 paragraphs (1) and (3).

(6) Where a foreigner becomes applicable under paragraph (1), securities company shall confirm the foreigner's excess holding without delay, and shall conclude agreement with the foreigner before initiating stock option transactions, expressly allowing disposition of the excess by the securities company.

§7-7. Administration of Acquisition Limit

The method of calculating acquisition limit pursuant to Article 7-6 and other matters necessary for the administration of such limit shall be determined by the Governor.

§7-8. Restrictions on Securities Trading

(1) Every foreigner shall, when intending to trade listed or registered securities, trade them through the securities market or the KOSDAQ market. However, these provisions shall not apply to any of the following cases:

1.	Acquisition of stocks by direct investment and disposal thereof;

2.	Acquisition of stocks pursuant to Article 7-6 paragraph (2) subparagraphs 5 to 10;

3.	Disposition by the exercise of dissenter's rights pursuant to Article 191 of the Act;

4.	Disposition by the subscription to the tender offer pursuant to Article 21 of the Act;

5.	Trading of listed stocks below the trading unit stipulated in the Business Regulation of the KSE;

6.	Trading of the issue whose trading reaches or exceeds the acquisition limit by issue for all foreigners in the case of listed or registered stocks, in accordance with Article 7-6 paragraphs (1) and (3). However, the trading between foreigners shall be prohibited in any of the following cases;

a. Stocks acquired by a foreigners when he was under national treatment, who has lost his qualification for national treatment;

b. Sale of stocks in excess of the acquisition limit pursuant to Article 7-6 paragraph (6).

7.	Acquisition of underlying stocks by an overseas depository institution in relation the issuance of DRs or DRs of trading stock;

8.	Acquisition of stocks offered and subscribed overseas for listing in foreign securities markets

9.	RP trading;

10.	Trading of listed bonds whose trading Party is a securities company or by the mediation of a securities company;

11.	Trading of listed beneficiary certificates;

12.	Loan transactions by the mediation of the KSD, securities finance companies, or Securities companies. However, the Issues to which the acquisition limit under Article 7-6 paragraphs (1) and (3) applies shall be limited to loan transactions between foreigners.

13.	Trading of securities through the electronic over-the-counter securities brokerage company

(2) In the case paragraph (1) subparagraph 5, any securities company shall be the counter party; in the case of paragraph (1) subparagraph 6, any securities company shall act as a broker.

(3) Where a representative of an investment group has purchased stocks in bulk in his or her own name, he or she may allocate the stocks to the foreigners of his or her group until the following transaction day, in which case foreigners receiving allocation shall be limited to those maintaining accounts with the securities company standing in business transaction relation to the representative.

§7-9. Issuance of DRs of Trading Stock

Any overseas depository institution shall, when intending to acquire stocks for the purpose of issuance of DRs of trading stock, obtain the prior consent of the issuer of underlying stock. However, these provisions shall not apply to the cases of acquisition of stocks for the purpose of issuing DRs of trading stock within the quantity already converted to underlying stock, from among already issued DRs (including DRs of trading Stock).

§7-10. Investment Registration

(1) Every foreigner shall, when intending to acquire or dispose of any of the following securities for the first time, register his personal details with the FSS, in advance:

1.	Listed or registered securities (including securities newly issued by listed corporations or registered corporations); and

2.	Securities offered or distributed for listing on the securities market or for registration with the KSDA.

(2) Notwithstanding the provisions under paragraph (1), investment registration may not be made in any of the following cases:

1.	Disposition of stocks acquired through the exercise of rights of overseas securities within three months from the acquisition date; or

2.	Acquisition or disposition of stocks in relation to direct investment. However, these provisions shall not apply to the case of acquisitions on the securities market or the KOSDAQ market.

(3) Where a foreigner registered to invest under paragraph 1 belongs to an investment group, the investment group may appoint a representative to declare as an investment group to the Governor.

(4) Matters necessary for the method, procedure, issuance of the investment registration certificate and declaration of the investment group, etc, shall be determined by the Governor.

§7-11. Refusal and Revocation of Investment Registration

(1) The Governor may, in case any foreigner who applies for investment registration pursuant to Article 7-10 falls under any of the following subparagraphs, refuse such registration:

1.	Cases where such foreigner is a person who has no nationality or dual nationality;

2.	Cases where such foreigner is a person for whom two years have not elapsed since the revocation of investment registration pursuant to the provisions under paragraph (2);

3.	Cases where there is any false description or omission of description in the application for investment registration or the documents attached thereto; or

4.	Cases where such foreigner doubly applies for investment registration or applies therefor by means of false or illegal manner.

(2) The Governor may, in any of the following cases, revoke the investment registration spend the effect thereof:

1.	Cases where such foreigner frills under any subparagraph under paragraph (1) after the investment registration;

2.	Cases where such foreigner violates this Regulation or any other order of the Governor;

3.	Cases where such foreigner applies for revocation of investment registration; and

4.	Cases where such foreigner fails to pay the purchasing money or sold securities in relation to the trading of securities, within five days from the settlement date.

§7-12. Opening of Accounts

Every foreigner shall, when intending to open a trading account for securities investment with a securities company, open an account separately for each class of invested securities in such manner as to be determined by the Governor.

§7-13. Restriction on Disposition of Deposits

Any foreigner may dispose of the funds deposited in a securities company, etc, only in any of the following cases;

1.	Purchase of securities (including sales in the case of investment in stock index futures and options) in accordance with the types of trading accounts.

2.	Payment of subscription margin, taxes, and fees related to acquired securities;

3.	Transfer to the non-resident domestic currency account in his own name or in the name of designated securities company as prescribed in the Foreign Exchange Transaction Regulation;

4.	Purchase of foreign currencies from securities companies; and

5.	Transfer to another trading account in his own name opened with a securities company.

§7-14. Restriction on Credit Extension

Every securities company shall not extend credits to foreigners by the method of lending of securities, from among the methods of credit extension pursuant to Article 49 of the Act, for the issues to which the acquisition limit under Article 7-6 applies.

§7-15. Custody of Securities

(1) Every foreigner shall keep the acquired securities (excluding the stocks listed on foreign securities markets and the bonds registered but not issued ) in custody of the KSD, foreign exchange banks under the Foreign Exchange Transaction Act, securities companies, management companies under the Securities Investment Trust Business Act, futures trading companies under the Futures Trading Act, or internationally-recognized foreign custody institutions (hereinafter referred to as "custody institution"). However, these provisions shall not apply to the crises where it is necessary for the exercise of rights to securities or actual inspection for confirming the presence of the securities.

(2) Every foreigner shall make the custody institutions under paragraph (1) the custody securities (limited to the securities eligible for deposition pursuant to Article 173-7 of the Act) with the KSD. However, these provisions shall not apply to the cases acknowledged by the Governor when it conflicts with the statutes of the country of such foreigner.

(3) Every foreigner shall, when subscribing to the rights offering, etc., apply to the KSD through his standing agent or trading securities company so that the KSD may recognize the details of subscription.

(4) Where stocks are acquired pursuant to the provisions of Article 7-8 paragraph (1) subparagraph 8, foreign company (hereinafter, "foreign depository") conducting business that is similar to that of the Korea Securities Depository under Article 173-2 paragraph (1) subparagraph 3 shall deposit the stocks acquired with the Korea Securities Depository notwithstanding the provisions of paragraphs (1) and (2).

§7-16. Appointment of Standing Agent

(1) Any foreigner may appoint a standing agent from among custody institutions under Article 7-15, and shall not have any person other than such standing agent represent or act for him in exercising the right of the acquired securities and in handling the matters related thereto. However, these provisions shall not apply to the inevitable cases acknowledged by the Governor when it conflicts with the statutes of the home country of such foreigner.

(2) The standing agent appointed pursuant to the provisions under paragraph (1) shall exercise due diligence as a fiduciary with good faith for the benefit of the foreigner concerned.

§7-17. Request for Data

The FSC may request foreigners, standing agents, overseas depository institutions, custody institutions, financial institutions, listed corporations, registered corporations, etc, to report the matters concerning the securities trading and other investment details of foreigners and to submit data related thereto.

§7-18. Measures in the Case of Violation

(1) The FSC may, when a foreigner acquires securities in violation of Article 7-6, issue an order to dispose such securities.

(2) The FSC may issue an order to the persons who violate the matters prescribed in this Chapter take corrective measures or take actions against them including revocation of investment registration.

§7-19. Exceptions to Application

(1) Article 7-6, Article 7-8, Article 7-10, Article 7-l2 to Article 7-16 shall not apply to foreigners under national treatment.

(2) The provisions of the Act on Promotion of Foreigners' Investment shall apply to direct investments, except those prescribed in this Chapter,

(3) Article 7-10, Article 7-12 and Article 7-15 shall not apply to the crises where a foreigner intends to acquire domestic currency bonds which are issued in Korea by a foreign corporation, and sold in overseas markets (including the case where domestic currency bonds sold in the domestic market are acquired for retirement by such foreign corporation).

(4) Article 7-8, Article 7-10, Article 7-l2 and Article 7-15 shall not apply to the foreign exchange stabilization fund bonds in foreign currency issued in Korea by the Government.

§7-20. Delegations of Power

(1) The power to approve securities trading by foreigners outside the securities market and the KOSDAQ market pursuant to Article 87-2 paragraph (3) of the Decree shall be delegated to the Governor in such manner as stipulated in this Chapter.

(2) The power to request report and data pursuant to Article 7-17 shall be delegated to the Governor.

(3) The Governor may determine the detailed provisions necessary for the implementation of the provisions stipulated in this Chapter.

Chapter 3.

Exercise of Voting Right of Deposited Stocks in the Name of the KSD

§7-21. Purpose

(1) The purpose of the provisions of this Chapter is to prescribe the matters necessary for the exercise of voting rights of deposited stocks in the name of the KSD pursuant to Article 78-7 of the Decree and the contents to be individually or publicly noticed with respect to beneficial owners when the issuer of the stock concerned (hereinafter referred to as "issuer") notifies or publicly notices the convening of the shareholder meeting.

(2) The terms used in this Chapter shall have the same meanings given to them in the following :

1.	The term "deposited stock" refers to the voting stock, from among the stocks which are transferred in the name of the KSD after a depositor make deposition of such stocks at the KSD.

2.	The term "beneficia1 owner" refers to a co-holder of the deposited stocks, excluding foreign shareholders (referring to foreigners stipulated in Chapter II).

§7-22. Methods, etc. of Request for Exemption of Exercise of Voting Rights

(1) In the case of Article 174-6 paragraph (5) subparagraph 2 of the Act, any issuer shall request the FSC not to exercise the voting rights by the KSD by describing the following subparagraphs seven days prior to the shareholder meeting :

1.	Name and address of the requester;

2.	Date of the shareholder meeting; and

3.	Reasons for request of exemption of exercise of voting rights by the KSD.

(2) The Governor shall notify the KSD of the contents of such request pursuant to the provisions under paragraph (1).

§7-23. Number of Shares to Exercise Voting Rights

(1) The number of shares whose voting rights to be exercised by the KSD shall be that of shares requested to the KSD by the issuers from among that of shares deposited by beneficial owners. However, in case the number of shares requested by the issuer is larger than that of the shares remaining after subtracting that of the shares on which beneficial owners have expressed their intention of direct exercise, exercise by proxy, or non-exercise of voting rights (hereinafter referred to as "expression of intention") to the KSD five days prior to the shareholders meeting, from that of the shares deposited by beneficial owners, it shall refer to the subtracted number of shares.

(2) Notwithstanding the provisions under paragraph (1), in case the agenda of the shareholder meeting is the appointment of the auditor, it shall be the number of shares, whichever is smaller between that of shares equivalent to 3/100 of the total issued voting shares and that of the shares under paragraph (1).

(3) In the case under paragraph (1), the period and method of request by the issuers and the method of expressing the intention of a beneficial owner shall be determined by the KSD.

§7-24. Method of Exercising Voting Rights

(1) The KSD shall exercise voting rights according to the ratio of yes and no (including renunciation and nullity; the same hereinafter) of the number of shares obtained from deducting that of shares on which the KSD is to exercise voting rights pursuant to Article 7-23 from the number of shares Participating in such shareholder meeting (including the number of shares voted in document)

(2) In the case paragraph (1), when there occurs a fractional lot less than one share (hereinafter referred to as "fractional share"), a factional share in affirmative votes shall be rounded down and that in negative votes shall be rounded up.

(3) The KSD may directly exercise the voting rights or make its proxy exercise them.

§7-25. Notice by the KSD

The KSD shall notify, in writing, the issuer of the effect and reason of disunited exercise of voting rights three days prior to the shareholder meeting pursuant to Article 368-2 of the Commercial Code.

§7-26. Individual or Public Notice by Issuers

Matters to be individually or publicly noticed by the issuer to beneficial owners pursuant to Article 174-6 paragraph (4) of the Act at the time of individual or public notice on the convening of a shareholder meeting shall be as follows:

1.	Matters prescribed in Article 174-6 paragraph (5) of the Act;

2.	Matters under Article 7-24 paragraph (1); and

3.	Method of expressing the intention of beneficial owners.

§7-27. Detailed Provisions

(1) The detailed provisions necessary for the implementation of the provisions of this Chapter shall be determined by the KSD.

(2) The KSD shall, when determining or modifying necessary provisions in accordance with the provisions of this Chapter report such contents to the Governor, without delay.

Addenda

(December 29, 2000)

§1. Effective Date

This Regulation shall be effective on the date of promulgation, except that Article 3-7 paragraph (1) shall become effective on April 1, 2001.

§2. Repeal of Other Regulations

(1) On the effective date of this Regulation, the following regulations shall be repealed: the Regulation on Supervision of Financial Soundness of Securities Companies; the Regulation on Temporary Suspension of Applying FSC Regulations to Converted Securities Companies; the Regulation on Reports by Securities Companies and Approvals by the Financial Supervisory Commission; the Regulation on Overseas Securities Business by Securities Companies; the Regulation on Securities Business by Foreign Securities Companies in Korea; the Regulation on Brokerage by Securities Companies; the Regulation on Futures and Options Trading by Securities Companies; the Regulation on Standard Agreements Drawn by Securities Companies; the Regulation on Credit Extension by Securities Companies, the Regulation on OTC Securities Trading; the Regulation on Bond Trading under Repurchase Agreements the Regulation on Dealing and Brokering of Bills by Securities Companies; the Regulation on Securities Savings Business by Securities Companies; the Regulation on Foreign Currency Securities Trading; the Regulation on Incidental Business to Securities Business by Securities Companies; the Regulation on Exorcise of Voting Rights of Deposited Stocks in the Name of Korea Securities Depository; and the Regulation on Securities Trading by Foreigners.

(2) Article 5-36 paragraph (2) shall be repealed on December 31, 2001.

(3) On the effective date of this Regulation, the Regulation on Supervision of Foreign Exchange Business shall not apply to securities companies.

§3. Interim Measures on Report, Declaration, Application, Approval, Authorization and Permission

(1) Any declaration, report, application, and other acts by securities companies to the FSC or the Governor pursuant to Article 2 paragraph (1) shall be deemed those to the FSC or the Governor pursuant to this Regulation.

(2) Any acceptance of declaration, approval, authorization, permission, and other acts by the FSC or the Governor to securities companies pursuant to Article 2 paragraph (1) shall be deemed those to securities companies, pursuant to this Regulation.

(3) In case any securities company which has received fund support from the Government, etc as of the effective date of this Regulation concludes an agreement with the FSC or the Governor for performance of management normalization plan, such agreement shall be deemed a management improvement agreement pursuant to Article 2-32.

§4. Interim Measures on Financial Actions of Securities Companies

(1) In applying the provisions of Chapter 2 of Part II, in case any securities company has any claims of money or securities on any insurance company with affiliate relationship (hereinafter referred to as "affiliated insurance company") as of the effective date of this Regulation or holds any securities issued by any affiliated insurance company, such claims or securities shall not be deemed "claims, etc, on the persons having a special relationship" .

(2) In applying the provisions of Chapter 4 of Part Ⅱ, in case any securities company holds any securities issued by any affiliated insurance company or lands money to any affiliated insurance company as of the effective date of this Regulation, Article 2-52 shall not apply to such holding or lending by the end of June 2001 (the due date if such due date of any lending of money arrives after the end of June 2001).

(3) Article 2-52 paragraph 1 p shall not apply by the end of June 2001 to the securities acquired before the enforcement ,of this Regulation by any securities company, which frills under such Provisions.

§5. Interim Measures on Newly Established or Converted Securities Companies

(1) In case any securities company established within one year retroactive from the effective date of this Regulation (hereinafter referred to as "newly-established securities company") holds any securities issued by the persons having a special relationship in excess of the ceiling as stipulated in Article 2-52 paragraph (2), such holding shall be deemed not in violation of such provisions for one year (in case the capital exceeds the capital stock within one year, one day prior to the date of such excess) from the date of establishment; such securities company is not allowed to newly acquire any securities issued by the persons having a special relationship, except the cases stipulated in the proviso of such provisions.

(2) In case any converted securities company holds any securities issued by the persons having a special relationship in excess of the ceiling as stipulated in Article 2-Article 2 paragraph (2) subparagraph 1, such holding shall be deemed not in violation of such provisions for one year from the date of conversion; such securities company is not allowed to newly acquire any securities issued by the persons having a special relationship, except the cases stipulated in the proviso of such provisions.

§6. Interim Measures on Deposit for Subscription

In applying Article 3-6 paragraph (2), the provisions concerning the agreement in the tatter stipulation of such provisions shall not apply to the deposit for subscription occurred as of the effective date of this Regulation.

§7. Interim Measures on Preferential Securities Savings

Any savings to which any tax benefit pursuant to the Act on Regulation of Tax Reduction and Exemption which is repeated as of the effective date of this Regulation Shall be deemed preferential securities savings pursuant to this Regulation.

§8. Citation of Other Regulations

In case Article 2 paragraph (1) is cited in other provisions before the effective date of this Regulation, such citation shall be deemed the citation of corresponding provisions in this Regulation.

Addenda

(May 3, 2001)

§1. Effective Date

This Regulation shall be effective on the date of promulgation (May 3, 2001); provided that the following Articles shall become effective on each date as set forth in the following subparagraphs:

1.	Of Article 2-15 paragraph (1) proviso, quarterly subtracting provision on subordinate borrowing of less than 1 year, and Article 2-15 paragraph (1) subparagraph 2, Article 2-15 paragraph (3)(excluding proviso) : April 1, 2002.

2.	Article 2-27 through 2-30 : The date which the Governor determines

3.	Article 4-9 through 4-12, Article 4-13, paragraph (2), Article 4-14 through 4-17, Article 4-20 through 4-22, Article 4-34 and 4-46: August 1, 2001; and

4.	Article 4-13, paragraph (1): April 1, 2002.

§2. Interim Measures on Subordinated Borrowings

The subordinated borrowings adding to net capital by reporting to the Governor before the effective date of this Regulation shall be applied by previous provision of Article 2-15 not with standing the revision of Article 2-15.

§3. Interim Measures on Investment Recommendation

By the effective date of amended Article 4-15, a Securities Company shall classify its customers into the qualified institutional investors and general customers which should be classified into the general customers to which the customers information is not disclosed and the general customers to which the investment recommendation will not be made.

§4. Interim Measures on Opening an Account for Financial Derivatives

With respect to the general customers which are trading the account opened for the stock index futures and options before the effective date of amended Article 4-21, the measures as set forth in the latter Part of the text under paragraph (2) of the same Article shall be taken by such effective date.

§5. Application Case on the Accumulation of Reserve for Losses on Securities Transaction

With respect to the accumulation of reserve for losses on securities transaction a securities company may apply the revised provision of Article 2-6.

§6. Application Case on the Calculation of Risk Amount

(1) In case a securities company subtract the guarantee for off shore fund from net capital pursuant to the revised provision of Article 2-24, it shall subtract 25/100 of the guaranteed amount at the end of September 2001, 50/100 at the end of march 2002, 75/100 at the end of September 2002, 100/100 at the end of March 2003.

(2) In case a securities company calculates 20/100 of maximum legal capital as fundamental risk pursuant to the revised provision of Article 2-25, it shall calculate 5/100 of the maximum legal capital by the end of June 2001, 10/100 by the end of September 2001, 15/100 by the end of December 2001, 20/100 by the end of March 2002.

§7. Examples for Application of Provision for Duty to Give Notice of Risks

By July 31, 2001, the provisions of Articles 4-3 through 4-7 of the old Regulations shall apply to the day to give notice of risks, confirmation on customers information, investment recommendation and provision of customers information.

§8. Deadline for Application

The provisions of Article 4-33, paragraphs (2) and (3) shall be abolished on March 31, 2003.

§9. Suspension of Application

In applying the provisions of the main Part of Article 2-52 paragraph (1), in cases of converted securities company by 4341 of the Law on Merger and Conversion of Financial Institutions the application suspension period shall be the aggregated period of combined business period and three years.

§10. Citation of Other Regulations

In case the old provisions are cited in the Addenda to the old Regulation, such citation shall be deemed the citation of corresponding provisions in this Regulation.

Addendum

(July 3, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(July 19, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(August 1, 2001)

This Regulation shall be effective on the date of promulgation

Addendum

(October 4, 2001)

§1 Effective Date

This Regulation shall be effective on the date of promulgation.

Addendum

(December 19, 2001)

This Regulation shall be effective on January 1, 2002

Addendum

(January 4, 2001)

This Regulation shall be effective on the date of promulgation.

Addenda

(May 1, 2002)

§1 Effective Date

This Regulation shall be effective on the date of promulgation.

§2 Interim measures on reserve for losses on securities transaction

Reserves for losses on securities transaction accumulated by securities company pursuant to the provisions of Article 2-6  shall be recycled equally for the three year period., except for crediting to the stated capital or preserving deficit.

Addendum

(March 20, 2001)

This Regulation shall be effective on the date of promulgation. However, Article 4-16 paragraph (2) shall be effective from May 1, 2002.

Addendum

(April 2, 2001)

§1 Effective Date

This Regulation shall be effective on the date of promulgation. However, Article 5-35 paragraph (1) shall be effective from July 1, 2001.

Addendum

(May 1, 2001)

This Regulation shall be effective on the date of promulgation.

Addendum

(July 18, 2002)

This Regulation shall be effective on the date of promulgation

Addendum

(August 1, 2002)

This Regulation shall be effective on the date of promulgation. However, Article 2-45-2 shall be effective from November 1, 2002.