Settlement services - South Korea

09.06.2021

Pre-matching service

The tables below summarise 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 offeredMethod employedStart (local time)
All securities

Immediate Release Flag available

Automated matching

10:30, SD-1

Connectivity mediumInstruction format

Xact Web Portal and CreationOnline

Tick the box to enable the "Immediate Release" option.

Xact via SWIFT and Xact File Transfer

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 counterpartyDeadline
KSD-eligible securities

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:

  • 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

Market deadline

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). For eligible listed securities (excluding fixed income), against payment transactions with domestic counterparties can only be in amounts of up to KRW 10 billion.

Note: For eligible listed securities (excluding fixed income), Clearstream Banking shall not be performing any check on the countervalue of against payment transactions and bear no responsibility for any such instructions that go beyond KRW 10 billion. Customers shall adhere to the above requirement to prevent potential compulsory partial settlement in the market.

CBL customers must select or indicate the “Immediate Release” option in their receipt against payment instructions as outlined in “Pre-matching service” (see above).

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).

Investor registration

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. Customers should note that access to this market is subject to conditions and criteria, which will be assessed on a case-by-case basis. Please contact your Relationship Manager to confirm or make the necessary arrangement, in case of doubt. Clearstream Banking reserves the right to revoke a customer’s access to the market in the event that such conditions and criteria are not fulfilled.

Documents must be submitted in English and all appendices to be completed must be printed on the applicant’s letterhead.

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(s).

  • A copy of a document issued by the government or a public institution of the relevant country that verifies the existence and business classification of the investor in the country. This may be a copy of a certificate of incorporation (COI), including for collective investment vehicle (corporate type). However, in the event the investor is unable to obtain a copy of the COI, then evidence of non-issuance of COI must be provided and the FSS may consider other supporting documents in its place, such as a copy of a tax certificate issued by the tax authority of the relevant country or other equivalent documents that are issued by the government or a public institution of the relevant country, such as a copy of a Certificate of Limited Partnership (USA), a copy of a CSSF UCITS Attestation (Luxembourg), a copy of a certificate or an approval letter from the Financial Regulator/Central Bank of Ireland (Ireland), a copy of a certificate or an approval letter from the Accounting and Corporate Regulatory Authority (Singapore), etc. The copy of the document must be certified true copy and notarised by a notary public in the same jurisdiction as the investor. The document(s) submitted must include the name of the applicant exactly as stated on the IRC application form, establishment/incorporation date of the investor, business classification of the investor (to be in line with the selection made on the IRC application form), the name of the issuing entity and the issue date of the document, which must be within 12 months from the date of the IRC application.  
  • 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.

Note: The FSS may require a summary of the content of the supporting documents, mentioned above and in the guidelines of the IRC application form, to be translated into Korean. As such, investors should be prepared to provide such translations, upon request, that are certified as true translation by a translator, for translations from a foreign language, other than English, into Korean.

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
Settlement Operations
9, Raffles Place
#55-01 Republic Plaza
Singapore 048619

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:

IRC Name:

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.

Settlement restrictions

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 categorised by the Korea 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:

  • Cash
    Customers are requested to provide a payment and foreign exchange order via MT599 or other authenticated communications medium, marked "Attn. PPC". 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”.
    The deadline is 15:00 (CET) on VD-1 (where VD=Trade date or, if customer intends to make use of the complete trading day in South Korea on TD, trade date -1).
  • Settlement
    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.

NCBO Transfers

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 with “Immediate Release” flag.

Customers shall ensure that they provision their cash accounts accordingly, with the USD amount  – The KRW amount equivalent in USD as well as a 5% buffer. For example, if the settlement amount is KRW 10,000,000 and exchange rate is 1 KRW = 0.00086 USD, the customer shall ensure that their account is provisioned for USD 8,600 + 5% (USD 430) = USD 9,030.

Note: CBL reserves the right to amend and update the buffer from time to time, to reflect market conditions. It is also the responsibility of customers to ensure the timely availability and coverage of their cash account with USD, as appropriate.

SD-1:

CBL shall post a debit to the customer’s cash account in USD for value SD-1. The debit shall be the provisioned amount described above.

SD-1 or SD:

The depository provides to CBL the foreign exchange (FX) details related to the customer instruction.

CBL shall, upon receipt of the settlement confirmation (MT545) from the depository:

  • Post a credit to the customer’s cash account for the purchase amount  in KRW, for value SD;
  • Verify the FX rate USD/KRW applied by the market;
  • If applicable, post a credit, to the customer’s cash account in USD no later than SD (rtp) for value SDa. The credit shall correspond to any remaining provisioned amount made on SD-2, in USD, that was not required for the FX.

Sale of securities - delivery versus payment (repatriation)

SD-2:

Customer instruction entered in the CBL system.

SD:

The depository will include the FX details in the settlement confirmation sent to CBL.
The depository will convert the KRW proceeds into USD.
CBL shall:

  • Debit the customer's cash account in KRW for the sale amount; and
  • Credit the customer's cash account in USD no later than SD (rtp) for value SDa.

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. PPC” 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.
    The deadline is 15:00 (CET) on VD-1.
  • 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.