Settlement services - South Korea
The table below summarises CBL’s pre-matching service for external settlement instructions, as well as the pre-matching method and start time in the market. For details of CBL’s pre-matching services, see Pre-matching services for external settlement instructions.
|Service offered||Method employed||Start (local time)|
|Immediate Release Flag available||Automated matching||10:30, SD-1|
|Connectivity medium||Instruction format|
|CreationOnline||Tick the box to enable the "Immediate Release" option.|
|Creation via SWIFT and CreationDirect||Field :22F::STCO/CEDE/IREL|
Domestic allegement matching service
Where no pre-matching instruction has been sent to the market, CBL accepts allegements via its depository from domestic market counterparties. It will then use these allegement messages to search for the best matching customer instruction.
If no matching customer instruction is found, the allegement is reported to the customer provided that its Clearstream Banking account number is present.
For details of CBL's domestic allegement service, see Pre-matching services for external settlement instructions.
Procedures for domestic counterparties
|Procedure for the domestic counterparty||Deadline|
|Customers delivering/receiving securities to/from the South Korean market must request their domestic counterparty to deliver/receive the securities from/in favour of the account of the IRC holder (6-digit IRC number) with HSBC Seoul as follows:||Market deadline|
|-||Delivering / Receiving Agent: HSBC Seoul|
|-||Deliverer's / Receiver's custodian: Clearstream Banking S.A. (BIC: CEDELULL)|
|-||Seller / Buyer|
|-||Ordering party's / beneficiary's account number in CBL|
Note: Counterparties must quote the IRC account number of the IRC holder with HSBC Seoul: 002-nnnnnn-421.
Allowed countervalue difference
A maximum difference in countervalue of USD 25 is allowed for matching and settlement of against payment transactions with domestic counterparties. In the event of a discrepancy within this limit, the amount to the delivering party will prevail.
Specific settlement rules / settlement restrictions
Against payment transactions with domestic counterparties in all eligible securities can only be effected in Korean Won (KRW).
CBL customers must cover their receipt against payment instructions in USD as outlined in "Automatic conversion of KRW purchase and sale proceeds" (see below).
Customers are not allowed to instruct clean payments in KRW in favour of or from their CBL customer account (that is, no instructions for the withdrawal, entry or transfer of funds in KRW are permitted).
Before investing in South Korean securities, CBL and HSBC will, at the customer’s request, arrange for an IRC number to be obtained from the FSS and open the related sub-account in HSBC's books. The IRC number and the underlying safekeeping account are used in all trading, settlement and reporting activities.
Customers must request their IRC in the name of the actual beneficial owner.
Note: IRC applications for beneficial owners that are individuals will not be accepted.
Documents must be submitted in English and all appendices to be completed must be printed on the applicant’s letter head.
The following is required from the CBL customer to apply for an IRC:
Note: For versions of the below-mentioned forms, see Forms for use in the South Korea market.
- Power of Attorney signed by the investor (or by its mandated representative) appointing HSBC as Standing Proxy and authorising HSBC to apply for an IRC on behalf of the customer. If the Power of Attorney is signed by a mandated representative, it must be accompanied by a copy of the document that authorises the representative to sign the Power of Attorney on behalf of the investor. The Power of Attorney must be notarised by a public notary.
- An application form (providing a detailed profile of the investor) required by and addressed to the FSS.
- A Consent to Provision of Financial Transaction Information signed by the investor.
- An Acknowledgement on Real Name Financial Transactions signed by the investor.
- An Identification of Beneficial Owner signed by the investor.
Note: The Power of Attorney, IRC application form, Consent letter, Acknowledgement and Identification of Beneficial Owner must be signed by the same person.
- A document issued by the government or a public institution of the relevant country that verifies the existence of the investor in the country. This may be a certificate of incorporation, tax certificate or equivalent document. The document must be an original or a certified true copy. The document(s) submitted must include the name of the applicant exactly as stated on the IRC application form, the name of the issuing entity and the issue date of the document.
- Some background to the applicant, illustrating their main activities; for a corporate entity, this is the memorandum and articles of association. For an investment trust, this is be the trust deed, prospectus, etc. In view of the many types of entities that apply for an IRC, it is not possible to specify every document that may be required by the FSS.
- According to the new “Know Your Customer” requirements announced by the Ministry of Finance and Economy, all foreign investors, when they open new accounts in South Korea, must provide the Corporate or Group (address, contact details, type of business, name of the CEO or representative, purpose of the institution).
Note: If the investor is not a direct Clearstream Banking customer, the customer must provide the duly signed “Contact Confirmation Letter”.
At the customer’s request, CBL and HSBC will arrange for an IRC number to be obtained from the FSS. Customers must make the request for investor registration via Clearstream Banking and address it to:
Clearstream Banking S.A. Singapore Branch
9, Raffles Place
#55-01 Republic Plaza
Additionally, customers must send a SWIFT MT599 free-format message with the following details to:
Attn: Settlement Singapore
Kindly assist to apply for IRC and open securities and KRW/USD cash accounts for the below client:
CBL Account Number:
The account opening process will generally take up to two weeks after the CBL customer has provided the relevant information.
If the application is satisfactory, HSBC will open in their books one Korean Won (KRW) cash account exclusively for securities investment, one USD cash account exclusively for securities investment and one safekeeping account in the name of the applicant. CBL will communicate the IRC number and the underlying accounts to the CBL customer. The customer’s account in CBL will not be eligible to invest in South Korean securities before obtaining an IRC and before opening the relevant cash accounts exclusively for securities investment with HSBC.
The safekeeping account must always be mentioned in the customer settlement instructions so that it can be transmitted to HSBC.
Customers are liable for the usage of any safekeeping accounts obtained through CBL and HSBC. Clearstream Banking shall bear no responsibility for any illegitimate or erroneous use - for any trading or other purpose - of such safekeeping accounts. CBL does not validate whether the safekeeping accounts that customers use in their settlement instructions sent to CBL represent the legitimate investor who ordered the underlying transaction. Clearstream Banking shall therefore not be responsible if the customer uses a safekeeping account belonging to an investor other than the investor on whose behalf the relating transaction has been or was deemed to be executed or settled.
Against payment transactions in all eligible South Korean securities with domestic counterparties can only be effected in KRW.
Prefunding for purchase of stocks that are designated as "investment warning issue / investment danger issue"
Customers that intend to purchase equities that are categorized by the Korean Stock Exchange (KRX) as "investment warning issue" or " investment danger issue" have to follow special processing rules. Prior to placing the purchase order for such shares, the complete settlement amount must be 100% prefunded in the same way as an "entrusted guarantee fund" with the broker. Such transactions cannot be settled in the DVP environment.
The settlement process is as follows:
Customers are requested to provide a payment and foreign exchange order via MT599 or other authenticated communications medium, marked "Attn. OBF Cash". The payment order must state the following:
- “The payment is related to the entrusted guarantee fund monies for PURCHASE of xxx” (where xxx is the name of the security);
- Name of the broker;
- Payment date;
- KRW amount to be paid to the broker;
- Number of the customer account with HSBC Seoul;
- “FX order: Purchase KRW against USD”.
To receive the purchased stock, customers are requested to send an RFOP (receipt free of payment) instruction and include in the narrative field: "Entrusted guarantee funds have been paid".
The deadline is 20:30 (CET) on SD-1.
Customers that want to make NCBO transfers between their own accounts, either internally or externally, on the South Korean market should include the words “Account Transfer” in the Settlement Processing Narrative field of their settlement instructions.
Automatic conversion of KRW purchase and sale proceeds
KRW can be purchased without any restriction. The following process will apply as indicated below with regard to customer instructions for purchase and sale of securities:
|Purchase of securities - receipt versus payment (funding)|
|SD-2:||Customer instruction entered in the CBL system.|
|SD or SD-1:||The depository provides to CBL the FX details related to the customer instruction. CBL will:|
|-||Post a credit to the customer KRW cash account for the purchase amount (type 10) for value SD;|
|-||Post a debit to the customer USD cash account (type 90) for value SD a.|
|Customers shall ensure the coverage of the USD account accordingly.|
|Sale of securities - delivery versus payment (repatriation)|
|SD-2:||Customer instruction entered in the CBL system.|
|SD:||The depository will include the foreign exchange details in the settlement confirmation sent to CBL.|
The depository will convert the KRW proceeds into USD.
|-||Debit the customer KRW cash account for the sale amount (type 90); and|
|-||Credit the customer USD cash account (type 10) no later than SD (rtp) for value SD a.|
a. If SD is not a bank holiday in New York, sales proceeds will be converted and remitted on SD; otherwise, the funds will be remitted on the next available New York business day.
Management of failed instructions
Under FSS regulations, trades must be settled in the appropriate market (KRX or KOSDAQ) by SD on T+2.
The FSS has stated that foreign investors that have not settled trades, including any buy-in/sell-out requirements, by SD+4 (T+6) may be suspended or have their investment registration cancelled.
New issues settlement
Settlement of shares that are received from an Initial Public Offering (IPO) does not occur in a RVP environment, because the payment date is generally about one month ahead of the subscription date. Therefore, customers that intend to subscribe for such shares and settle the transaction via Clearstream Banking must take the following steps:
- Cash settlement
Customers must send a SWIFT MT599 or CreationOnline free-format message to “Attn. OBF Cash” stating the following information:
- “FX order: Purchase KRW against USD”;
- Stock Name and ISIN;
- Number of customer’s security account with HSBC Seoul;
- Number of subscribed shares;
- Cash amount in KRW;
- Name of the designated local broker;
- BIC (if available), Final Beneficiary (Broker) and account number;
- Value Date.
- Securities settlement
Customers can send a receive free of payment settlement instruction or include, in the free-format message mentioned above, an instruction to receive the shares on the shares payment date.
The deadline is 20:30 (CET) on SD-1.