Both foreign and local investors may invest in fixed-income instruments in the Republic of Korea's bond market. Regulations for the protection of bondholders are discussed in this section.

Investor Participation—Retail Investor

There are no specific rules governing retail investors' participation in the Korean bond market. Korean retail investors are able to conduct bond transactions using online financial services and investment tools provided by over-the-counter (OTC) market institutions. OTC market institution sites are linked below.

Investor Participation—Foreign Investor

Rules and regulations concerning foreign investors are stipulated in the Foreign Investment Promotion Act (FIPA), Special Tax Treatment Control Act (STTCA), Commercial Act (CA), and Foreign Exchange Transactions Act (FETA). Foreign investors and foreign-invested companies enjoy the same rights as local residents and locally-owned companies, unless otherwise legally specified. There are no specific restrictions applying to foreign investment in the Republic of Korea, provided the investment does not violate national security, public health, or the environment.

The FETA liberalized transactions for foreign investors. The responsibility for administering the Act is shared among the Ministry of Strategy and Finance (MOSF), the Bank of Korea (BOK), and the Financial Supervisory Commission (FSC).

English translations of the FIPA, CA, and FETA are provided through the links below. There is no full-text English translation available for the Special Tax Treatment Control Act.

Investor Protection

The Korea Financial Investment Association (KOFIA) provides an overview of investor protection, which can be accessed through the link below.

Bondholder Rights

In general, statutory laws governing bondholder rights are covered under insolvency codes. Bond documents (e.g., prospectus, term sheets, subscription agreements) accompanying an issuance may also contain provisions, default, and cross-default clauses specific to the bond issue. These provisions provide additional protection to bondholders.

The Asia-Pacific Restructuring and Insolvency Guide 2006, which is linked below, provides information on creditor rights in the Asia-Pacific countries.

The Ministry of Strategy and Finance (MOSF) largely determines foreign exchange policy. The Bank of Korea (BOK) oversees foreign exchange transactions. The Foreign Exchange Transactions Act (FETA) and the Securities and Exchange Act govern cross-border portfolio investments.

The International Monetary Fund’s (IMF) Annual Report on Exchange Arrangements and Exchange Restrictions provides a summary of the regulatory environment for capital market transactions.

Capital Inflow

Foreign investors can access all money-market, fixed-income, and equity instruments with no ownership limits. Foreign investors must register investments. However, there are exemptions if foreign investors reside or work in the Republic of Korea for more than six months. The registration procedure is as follows:

• register with the Financial Supervisory Service (FSS);
• designate a foreign exchange bank and open a nonresident account; and
• obtain a bond investment account with a securities house.

Capital Outflow

Individual residents may invest overseas without restrictions. However, they must course their transactions through a foreign exchange bank, or notify the Bank of Korea (BOK) before each transaction. The purchase of won nonmarketable bonds or short-term securities abroad is subject to regulatory approval.

There are no restrictions on remitting dividends or profits accrued from stocks or bonds, except that they must be in unrestricted foreign currencies. Under the FETA, the foreign exchange bank reports repatriation of capital and remittances after the transaction has been completed.

The government of Korea adopted a free-floating exchange rate system in December 1997. The Foreign Exchange Transactions Act (FETA) regulates the exchange rate system and foreign exchange operations. Under the FETA, the Ministry of Strategy and Finance (MOSF) and Bank of Korea (BOK) regulate foreign exchange transactions.

Import/Export of Currencies

Residents and nonresidents can export and import domestic and foreign currencies valued under USD10,000 without restriction. Any person who exports and imports KRW with a value of more than USD10,000 requires declaration to the customs office. BOK approval is required for amounts in excess of USD1 million.

Domestic/Foreign Currency Accounts

Nonresidents are permitted to carry out current transactions denominated in KRW provided that remittances are made in foreign currencies. They may open a nonresident domestic currency account with foreign exchange banks in Korea but notification to BOK is required for remittance of funds withdrawn from these accounts. Also, nonresidents can hold free won accounts where they can convert won-denominated funds into foreign currency and transfer the proceeds abroad.

Foreign currency held locally and overseas by residents is freely permitted. With the exception of institutional investors, residents remitting more than USD50,000 to an entity abroad must declare this to the Bank of Korea.

Borrowing/Lending

Notification to the BOK is required for all lending by residents to nonresidents as well as all lending to residents by nonresidents.

Domestic foreign exchange banks are allowed to make foreign currency loans to residents. Banks are free to borrow foreign currency funds from nonresidents. For funds exceeding USD30 million, notification of the MOSF is required. Nonresidents may take out a foreign currency loan from a foreign exchange bank without any restrictions.

Residents intending to obtain KRW-denominated loans from nonresidents must notify the MOSF. Foreign exchange banks are allowed to extend domestic currency loans to nonresidents of up to KRW1 billion without any restriction.