Investment regulation - South Korea


The FSS issues foreign investors with an Investor Registration Card which is required before investment in securities that are available via the KSE can take place.

The FSS also supervises the holdings of foreign investors in specific securities.

Investor Registration Card (IRC)

The IRC contains a unique identification number for each foreign investor, including the investor’s name, date of birth or establishment, nationality and type of entity (that is, individual, bank, mutual fund, etc.).

Each holder of an IRC is recognised as a separate independent beneficial owner. The IRC is required in order to open a cash account for securities investments, a securities safekeeping account with a custodian bank and a securities trading account with a broker.

The IRC number must be quoted whenever a foreign investor places a purchase or sell order via a broker. Settlement is performed via the accounts that have been opened using this investor IRC. The securities held by a foreign investor are held for safekeeping in the securities account opened using this investor IRC.

Foreign direct investments

Under the Foreign Investment Promotion Law (FIPL), foreign investors, including foreign companies, foreign funds, etc., can acquire stakes in any listed or unlisted Korean company.

This type of investment is considered as a long-term investment. Usually, the deal is conducted directly between the foreign investor and the local company, under the guidance of a lawyer in accordance with the FIPL.

An IRC is not required for this type of investment.


Under the “Supervision on regulations of Securities Business”, foreign investors are required to keep FIPL shares, provided that they are KSD eligible, with a local custodian at the KSD.

Physical non–KSD-eligible FIPL shares can be held in safekeeping in the vaults of a local custodian bank. A delivery of shares outside Korea is not allowed. Exceptions to this are when the Financial Supervisory Commission approves the delivery and shares are bearer shares under the FIPL regulations.

Disclosure rules

The same disclosure rules as for IRC investments apply (see “Disclosure requirements - South Korea”).

In addition to the commonly applicable disclosure rules, if the holdings of equity securities of any Korean company reach 10%, the FIPL investor is obliged to file a disclosure report with the Ministry of Commerce, Industry and Energy (MOCIE).

IPO and Lock-up period

After an IPO, shareholders of pre-IPO shares under the FIPL can trade newly listed shares on the exchange or off-market.

A lock-up period is applied to prevent the largest shareholders and affiliated persons from making unfair capital gains once the shares are listed. The lock-up period lasts, as follows:

KOSDAQ Market:One year starting from the first listing date
Stock Market Division of KRXS:Six months from the first listing date

Holding restrictions

Foreign investors are allowed to invest in the Korean equity securities market without any restrictions. The only exceptions are a small number of companies of national importance and some industries (such as aviation, communication and broadcasting) where limits ranging from zero to 49.99% apply.

For KRX KOSPI listed stocks, see:

For KRX KOSDAQ listed stocks, see:

The Korean government and the FSC establish and monitor the aggregate and individual limits of equity securities owned by foreign investors through the Foreign Investment Management System.

Foreign Investment Management System (FIMS)

A foreign investor trading in shares subject to ownership limits must report trades in the above-listed securities to the FSS via the FIMS. The FIMS is a computer system connecting the FSS with licensed securities companies. Such trades are automatically reported via the FIMS by the securities companies on behalf of the foreign investor.

The main functions of the FIMS are:

  • Reporting all trades placed by foreign investors to the FSS;
  • Pre-monitoring trade orders of shares with foreign ownership limits.

Purchase orders in listed shares that are subject to foreign ownership limits and cause the aggregated and individual foreign ownership limits to be exceeded will be blocked automatically by the FIMS. Sales orders of shares that were not reported to the FSS when purchased will be blocked and cannot be placed in the market.

Exceptions to foreign ownership limits

Foreign investors are, as exceptions, allowed to acquire shares exceeding the aggregate foreign ownership limit when:

  • The acquisition is a direct foreign investment;
  • The acquisition is through the conversion of foreign depository receipts into ordinary shares;
  • A Korean investor changes nationality to a foreign nationality;
  • A foreign investor treated as a Korean national for investment purposes is no longer treated as a Korean national;
  • Such shares are acquired:
    • Through the exercise of rights from securities issued overseas;
    • Through the exercise of rights from convertible bonds, bonds with warrants and exchangeable bonds;
    • Through the exercise of rights as a shareholder;
    • As a gift or inheritance;
  • A foreign legal entity acquires the shares due to a merger;
  • The acquisition is allowed by the FSC.

Foreign investors that acquire shares and exceed the aggregate foreign ownership limits are required to sell the excess shares within three months of their acquisition and will be restricted in exercising their voting rights. Any other entitlements, such as dividend payments, corporate actions, bonus issues etc., remain valid.

Foreign investors that acquire shares and exceed the foreign ownership limit will be punished by a forced sale of the share, withdrawal of the IRC approval, or any other measure deemed appropriate by the FSS.

Conversion into shares with foreign ownership limits

The following instruments can be converted into shares with foreign ownership limits:

  • Depository receipts (DRs
    DRs are included in the foreign ownership calculation and the foreign ownership level will not change if conversion to original shares occurs. No restriction is applied to the conversion of DRs to ordinary shares.
    Upon conversion of the DRs into shares and settlement of the conversion, the foreign investor is able to place a sell order for the shares. It is not possible to place the sell order before final settlement of the conversion as the FIMS blocks trades that would cause a breach of the foreign ownership limit.
  • Overseas convertible bonds, exchangeable bonds and bonds with warrants
    Foreign investors will only be allowed to exercise their rights to convert such provided that the conversion does not exceed the foreign ownership level.


Shares include:

  • Voting shares;
  • Certificates representing the right to subscribe for new voting shares;
  • Bonds convertible in voting shares;
  • Bonds with warrants with respect to voting shares;
  • Preference shares are normally excluded unless they have been connected with voting rights;
  • Exchangeable bonds;
  • Derivative instruments.

A holding of shares is defined as shares held on the investor's account and any rights to take delivery of such shares (that is, under the terms of a sale and purchase agreement, options, etc.).

Persons subject to the disclosure rules

According to the laws and regulations, the status of “beneficial owner” extends beyond an individual or company holding shares for its own account and includes those other persons having a “special relation” to it (known as an affiliated person(s) or “persons acting in concert”). An individual or company and those other affiliated persons will have their holdings aggregated for the purpose of the 5% rule.

Affiliated persons

  • The definition of “affiliated persons” in the case of an individual, generally includes, as follows:
    • any spouse (including a de facto marriage);
    • Relatives within a certain degree of relation as described in the law;
    • Adopted children and their former relatives within a certain degree of relation as described in the law; and
    • Persons of the same household.
  • The definition of “affiliated person” in the case on a company, generally includes, as follows:
    • Officers of the company;
    • “Affiliated companies”; and
    • Officers of an “affiliated company”. (“Affiliated company” as defined under Fair Trade Law.)

In addition, the Disclosure Law indicates that: the major shareholders (defined as those that hold a 39% or greater shareholding), their relations, officers of and “controlling persons” of a company and persons controlled by a company (that is, parent, sister or subsidiary company relation, etc.) will also be deemed as “affiliated person” and have their holdings aggregated for purposes of the 5% rule.

The term “controlling persons” includes not only control of a company through ownership of 30% or more of the capital, but also the exercise of de facto control or influence over a company, that is the power to appoint/dismiss directors or handles directly major management matters for the company.

Persons acting in concert

The term “persons acting in concert”, under the Disclosure Law, refers to persons who have agreed to acquire or dispose of the relevant shares together or have agreed to exercise voting rights together.

Definition of holding under the Disclosure Law

The 5% rule currently applies to voting shares held by a person being the final beneficiary and its “equivalent”.

The term “equivalent” ownership includes 6 categories:

  • Equity securities held by a person being the final beneficiary;
  • The right to take delivery of equity securities by operation of law or in a sale and purchase of such equity securities or by other agreement;
  • The right to acquire or dispose of equity Securities or obtain voting rights in such equity securities, including the right to give instructions as to voting rights by operation of law, voting trust agreement, security agreement or by other agreement;
  • The right to complete the sale and purchase of equity securities;
  • A call option to complete the sale and purchase of equity securities upon exercise of such call option;
  • A stock option issued pursuant to Article 189-4 of the Securities and Exchange Act.

Cooling-off period for the 5% disclosure report

The first time that an investment is reported as being for the purpose of management control, there is a cooling-off period from TD until the 5th business day after the report date during which the investor will be suspended temporarily from exercising voting rights and from acquiring further shares. Subsequent reports (for example, for changes of 10% or more to the holding) are not usually subject to the coolingoff period, nor any reporting that states the purpose as a simple portfolio investment.

The exception to the above occurs when an investor changes the purpose of the investment from management control to a simple portfolio investment and then back to management control. Reporting the latter would result in a further five-day cooling-off period.

Sanctions against violation of disclosure rules

Under the current regulations, in accordance to the level of the legal breach, violations of the reporting requirements may be subject to:

  • Issuance of a warning letter;
  • Limitation of voting rights;
  • Administrative order to:
    • Sell the shares exceeding the reporting limit;
    • Submit correction reports;
    • Recommend the dismissal of officers;
    • Publicly announce the violations. 
  • Criminal sanctions of up to KRW 5 million in fines and/or maximum of 1 year imprisonment.