Derivative-linked Securities´ Issuance, Deposit and Settlement
"Derivative-linked securities" means instruments bearing the right which the amount payable or collectable shall be determined according to a predetermined formula tied to fluctuations in the price of any underlying assets, an interest rate, an indicator, a unit, an index based upon any of the aforementioned. (Article 4, section 7 of the Financial Investment Services and Capital Markets Act)
|Issuers||Issuers are financial investment entities authorized to conduct over-the-counter (OTC) derivatives business.|
|CSD (KSD)||KSD provides issuance, deposit (blanket deposit), and rights management (redemption payments) for derivative-linked securities.|
|Liquidity Provider(LP)||LPs are KRX clearing members authorized to conduct securities and over-the-counter (OTC) derivatives business.|
|Banks for redemption payment||Issuers sign a redemption payment agent contract with a designated bank to settle the redemption payment through the check clearing system.|
|Issuing agent||The issuing agent is the transfer agent (KSD) that signed an issuing agent contract with the issuer.|
Procedures of issuance, deposit, and settlement of derivative-linked securities
- Creation of the security
- Submission of a registration statement from the issuer to the Financial Supervisory Service (FSS).
- Application for an ISIN code by issuer to KRX.
- Entering of securities information by the issuer into KSD.
- Issuance and blanket deposit
- Once the issuer finishes entering the securities’ information into the system and makes an application, physical securities, in the form of global certificates, are issued in the name of KSD, after which the whole amount is deposited by the way of the blanket deposit.
- Securities circulation
- Restrictions are placed on trading, settlement, split, reverse split, and return. Only book-entry transfers are allowed.
- Exercise of rights
- When the payment conditions of redemption are confirmed, an issuer notifies KSD two business days before the payment date.
- The redemption is paid by payment offices of principal and interest through the way of exchange claims.
- At the end of rights exercise, KSD retires securities that need to be cancelled under the Regulation on Management of Uniform Stock Certificate, etc.
Benefits of the issuance, deposit, and settlement service of derivative-linked securities
- Convenience for participants is maximized since all services including issuance, deposit, redemption payments, and cancellation of securities is provided through a single service.