Settlement process - South Korea


Settlement cycles

Equities, KTBs and MSBs:T+2
Government Bonds Inter-Dealer Market at KRX:T+1
Ordinary Bond Market at KRX:T+0

Note: Cash market transactions are settled on T+0. However, foreign investors are not allowed to engage in cash market transactions.

Settlement flow

Contractual settlement is not allowed under Korean regulations. Settlements must be posted on an actual settlement date basis. Settlement on T+2 is compulsory, whether or not the broker receives payment.

When a broker does not receive payment of the relevant cash or securities to settle the trade, the broker must use their own funds or securities holdings. A broker that fails either to pay or to deliver securities is considered to be in default by the Financial Supervisory Commission.

T:The broker executes the trade and sends an advice to the fund manager immediately. Trade details are wired to InSet at the KSD.
T+1:Settlement instructions, including foreign exchange deals, for value SD are sent to the custodian banks. Foreign exchange deals should reflect the exact balance due on purchase including the local broker’s commission.
T+2:Shares are transferred from the seller’s account to the buyer’s account at the depository by 17:00 (local time), Monday to Friday.

Under InSet, cash is settled on a bilateral net basis with the broker and custodian bank paying via BOK-Wire.

Settlement of off-market transactions

Most bonds and all short-term money market instruments are traded off-market (Over-the-counter - OTC) and settlement date for such trades is normally T+0. Foreign investors should ensure that their brokers arrange sufficient time (at least two days) for settlement.

Securities delivery bill

When a selling broker is not in a position to deliver the securities on settlement date because the securities are either in the process of transfer or a stock split or have been lost or are found to be forged, the broker may, in consent with the receiving broker, deliver a securities delivery bill issued by the KRX.

The securities must be delivered, at the latest, by the third day following the date of issue. If the securities are not delivered within this period, the relevant delivering broker will be considered to be in default.

Settlement regulations

The BOK and the FSS strictly control both foreign exchange and securities dealing. Many of these controls affect share trading and settlement. Key activities that are not permitted are, as follows:

  • Contractual settlement (settlement must occur on an actual SD basis);
  • Overdrafts for non-resident investors;
  • Margin trading (permitted only for individual investors);
  • Free delivery of securities to third parties. (Securities bought in the name of one IRC holder must be held in this name until sold through the exchange or an OTC trade to another foreign investor);
  • Late settlement.

Turnaround (back-to-back) trades

Same-day turnaround trades are allowed only for shares listed on the KRX and KOSDAQ under the condition that the sale is done following the confirmation of the execution of the buy order. The same settlement cycle applies as for non-linked trades (T+2). The trades must have the same IRC and sameday value.

Settlement of bonds

Bond orders executed via the KRX are settled either on trade date or T+1, but the settlement of bond orders executed OTC is negotiable, between T+1 and T+30.


There is no buy-in procedure as short selling is not allowed.

Under FSS regulations, market trades must be settled by settlement date (T+2). Settlement between brokers is compulsory, whether or not sufficient cash and/or securities are available. Therefore, if there are either insufficient funds or insufficient securities on the customer account, the brokers will use their own funds or proprietary assets to settle outstanding trades.

If a client of a broker does not provide funds to cover a purchase on settlement date, the broker will cover the transaction with its own funds to settle the trade and then request the client to credit the outstanding amount within SD+2. If the purchase amount is not covered by SD+2, a sell-out will become necessary and the broker must sell the shares at the beginning of the day on SD+2 at the lowest selling price. The failing investor will bear any losses, interest, commissions and charges.

If the shares cannot be sold on SD+2 because of an illiquid market, the broker will continue to try to sell the shares on the following business days until enough liquidity is available. The broker will debit the investor with interest charges for each day the sell-out is pending.

If a client of a broker does not have sufficient securities on his account to settle the sale transaction, the broker will cover the transaction by either using proprietary assets, issuing a Securities Delivery Bill or borrowing the required securities. The failing client must bear all costs and losses resulting from the failure.

If the client is a foreign investor and the purchase transaction does not settle on SD, it is possible to hold the trade until SD+1. If the trade is still pending on SD+1, the broker must sell the shares at the beginning of the day on SD+2 at the lowest selling price. The failing party must bear any loss and penalty/claims.

If a foreign investor does not cover the purchase transaction on SD+2 because of reasons predetermined by the securities companies, the broker can process the pending transaction in accordance with its internal rules. In such cases, it is possible that the broker does not perform the mandatory sell-out on SD+2.

Reasons to delay the mandatory sell-out (for example, non-receipt of settlement instructions, nonreceipt of foreign exchange instruction, discrepancy in settlement instruction, public holiday in the investors country) are pre-determined by the securities companies and may differ from one securities company to the other.

If the purchase amount is not paid by SD+2, the broker is required to designate the foreign investor's account as a “frozen account”. In order to avoid this situation, the foreign investor must pre-fund or pre-deliver 100% of the cash and/or securities to all brokers on trade date for a period of 30 calendar days that starts one day after the date of non-settlement.


Under the regulations of the FSC, all KSD eligible securities acquired by foreign investors must be deposited with the KSD.

The securities are registered in the nominee name of the KSD and re-registration is not necessary.

In case of corporate actions, KSD participants, such as custodian banks, submit details of the beneficial owners to the KSD which submits the data to the issuing companies. Entitlement payments are distributed to the beneficial owners via the KSD and the KSD participants.

Free of payment transfers are only allowed on an exceptional basis (for example, a merger between two IRC holders). Transfers between different IRC holders can only be effected by cross-trading in the market.

Investment fund groups and exclusive trading accounts

If a fund manager manages a multiple number of IRCs and these IRCs are an investment fund group, the fund manager of the investment fund group is allowed to place a bulk order through an IRC that represents the investment fund group. The fund manager can then distribute the shares of the bulk trade at the average trade-volume-weighted stock price among the IRCs after the trade is completed.

Also, fund managers can use an exclusive trading account that is opened in the name of the broker and place bulk orders. To place a bulk order, fund managers must contact their trading brokers directly and pre-notify their intention of using an investment fund group. Documentary requirements to apply for either setting up an investment fund group and using an exclusive trading account may vary from broker to broker.

Payment systems

The Bank of Korea Financial Wire Network (BOK-Wire), the only real-time gross settlement system in Korea, is owned and operated by the Bank of Korea. Participation in BOK-Wire is open to all institutions that are eligible to hold current accounts with the Bank of Korea, such as banks, securities companies, insurance companies, and other related institutions.

BOK-Wire enables participants to transfer domestic currency funds irrespective of the reason for payments. The system also handles the settlement of net positions for retail payments (that is, cheque, bank giro and CD/ATM transactions) and the cash leg of OTC bond transactions on a DVP basis.

BOK-Wire allows, in addition to domestic currency transfers, transfers in USD and KRW between the foreign currency accounts of participants.

All fund transfers are carried out on a real-time, trade-by-trade (gross) basis. Once the fund transfers and settlements have been made, they are irrevocable and unconditional. For erroneous payments, the payer must ask the recipient to carry out an offsetting transaction.

Foreign exchange regulations

Outward payments and remittances in foreign currencies are regulated and monitored by the MOFE and the BOK. Proceeds from the sale of investments may be repatriated freely by IRC holders. Sales proceeds converted into foreign currencies can either be remitted overseas or held in onshore foreign currency accounts.

KRW can be purchased freely without restriction and are not linked to securities investment. Overdrafts in KRW are not permitted.

Foreign exchange transactions can be routed through any foreign exchange bank. Due to the tight settlement time frame and the penalties resulting from failed trades, the use of a custodian bank for foreign exchange transactions is highly recommended.

Initial Public Offerings (IPOs)

Book building

Three weeks before the subscription date, the issuing company and the lead underwriter announce the “book building” date in a local daily economic newspaper. The book building phase lasts 3 weeks, during which the volume of demand is anticipated, the initial market price is determined, the IPO price is fixed and the IPO shares are allocated to each participant. The results of the book building and general subscription details are announced about one week prior to the subscription date.

Subscription by foreign investors

Foreign investors can subscribe via one of the brokers who have participated and have been allotted substantial IPO shares. The result of the share allocation is included in the subscription announcement.

The pay date of IPO shares is about one month after the subscription date. The time frame of the pay dates varies for each issuing company. Subscribers have to deposit the full subscription amounts to their brokers on the subscription date.

If IPOs are over subscribed and the investor does not receive the complete, subscribed amount of shares, the overpaid subscription amount is refunded ten days after the subscription date.

The up-to-date subscription ratio of the IPO is available at each of the participating brokers during the two subscription days.

Settlement risk

Settlement of IPO shares is not processed in a true RVP environment as the subscription payment must be made prior to the receipt of the shares.

Limitations to subscription

There are three limitations to subscription for investors, as follows:

  • Investors that wish to subscribe for new shares may need to keep a three-month-average cash balance in the brokerage account. Shares are allocated to subscribers according to the amount of funds kept in the account;
  • Investors are not allowed to subscribe above a certain maximum limit;
  • Subscription of new shares can only be placed with a single broker, not with multiple brokers.

For more details, investors need to contact one of the underwriters of the new securities.