Overview

• With the opening of the domestic capital market in 1992, institutional investors began to invest in foreign securities in earnest. Then, in July 1994, general investors were permitted to invest in foreign securities. To facilitate the cross-border transactions by domestic investors, KSD has been providing cross-border deposit and settlement services through foreign custodians.
• In order to invest in foreign securities, general investors have to use the securities companies with the license for international operations. In addition, they have to deposit the foreign securities they purchased with KSD. In consideration of the fact that general investors are usually small investors who have difficulties in appointing a foreign custodian for themselves, KSD, as a reliable public organization, provides deposit and settlement services, protecting investors’ assets and rights, and minimizing costs.
• Starting from January 1995, institutional investors were also allowed to deposit their purchased foreign securities with KSD. With an upsurge in cross-border securities investment, institutional investors are increasingly using KSD international deposit and settlement services to avoid redundancy in operational processes and an exorbitant cost of separately appointing a foreign custodian.

Foreign Securities and Settlement Services

• Appointment of Foreign Custodians
  • KSD has appointed five foreign custodians to keep the foreign securities in relevant foreign markets.
  • The custodians provide settlement and entitlement processing services on behalf of KSD. With the five custodians, KSD has established the Cross-Border Clearing Network (CCN) covering a total of 42 countries. Institutional investors as well as general investors can take advantage of the network.

  • Appointed Global Custodians

    Custodian	Headquartered in	Coverage
    Euroclear	Brussels, Belgium	Eurobond and other foreign currencydenominated bonds covered by Euroclear business areas
    Clearstream	Luxembourg	Eurobond and other foreign currencydenominated bonds covered by Clearstream business areas
    State Street Bank	Boston, USA	Asia, etc.
    Citibank	New York, USA	Japan, Hong Kong, USA, etc.

• Foreign Securities Transaction Procedures
  • Account opening
    • In relation with KSD’s foreign securities deposit and settlement services, opening a foreign securities deposit account is just like opening a domestic securities deposit account, except for one thing. KSD has to open foreign securities deposit accounts with foreign custodians.
  • Order Placing
    • When general investors place sell orders, brokers hold the securities as a good-faith deposit. For buy transactions, funds (in KRW or foreign currency) are held as a good-faith deposit. However, in the case of back-to-back transactions, which involve a pair of transactions that require a counterparty to receive and redeliver the same securities on the same day, investors are not required to put up additional good-faith deposits. Domestic brokers place orders through local brokers for their customers. When submitting transaction details, domestic brokers must inform local brokers that KSD will settle the transactions and that who will be the counterparty (i.e. KSD's foreign custodian) to handle settlement on KSD’s behalf.
  • Notice of Trade Execution
    • On receiving trade orders from domestic brokers, local brokers place orders in their respective markets and provide trade details to domestic brokers after trading. Brokers in Korea are required to inform their customers, KSD, and the foreign exchange bank of relevant details after confirming transactions.
  • Instruction for Settlement
    • Brokers in Korea give settlement instructions to KSD, who relays the received instructions to the custodians located overseas. Then, the custodians conduct securities settlement with local brokers on behalf of KSD.
    • Settlement is made on a DVP basis, transferring securities against cash. After settlement is done, KSD receives detailed statements from the custodians and deliver them to the brokers concerned.
• Entitlements Processing
  • All rights derived from deposited foreign securities are processed collectively by KSD. All the foreign securities deposited with foreign custodians are registered in the names of the foreign custodians. Therefore, rights are allocated to the custodians and then are relayed to general investors through KSD and brokers.
  • On receiving notices from issuers regarding corporate actions, foreign custodians relay them to KSD and KSD in turn relays them to participants. Participants then deliver the details to their customers so they can exercise their rights in time. In the case of new issue subscription, voting rights, and other requests, KSD receives instructions from participants and relays them to the custodians. In other words, general investors can exercise their rights on foreign securities safely and easily as if they were investing in domestic securities.
• Communication System
  • KSD provides cross-border deposit and settlement services via its proprietary communication system called ‘SAFE 21’ to its participants. Settlement instruction, settlement confirmation report, balance check and various corporate action-related information are processed on-line and in real time. Each participant can print out and check his Participant Account Book at the start of every business day.
  • In addition, the communication between KSD and its foreign custodians is done via each custodian’s proprietary system or SWIFT (Society for Worldwide Interbank Financial Telecommunication).
• AHTS(American Home Trading System)
  • Thanks to the American Home Trading System (AHTS), Korean investors can log on to the US stock markets (NYSE, NASDAQ, AMEX, ECNs) through the internet home trading system. Then, they can have their transactions settled by an automated computer system operated by BNY Clearing, KSD’s foreign custodian for US stocks.
  • The AHTS has enabled Korean investors to enjoy a variety of investment opportunities and portfolio management strategies with a reasonable transaction cost.