Abstract
As emphasised above, the Korean intermediated system is designed resting on the property law model as the German system. Under the property law formulation, the fundamental principle in property transfer is that the specific subject matter of the transaction is directly transferred from the transferor to the transferee, keeping its identity without intermediate acquistion. In the intermediated system, this principle is reified by strict matching book-entries to the accounts of the transferor and the transferee. In addition, since the Korean intermediated system, as a method of encumbering security interests in securities, recognises only pledge (jilgweon), a priority issue does not occur in a complicated way. Like the primary priority rule of the Geneva Securities Convention, and Article 1209 of BGB, Article 333 of KCC provides the first-in-time rule for several interests of pledges over the same movable.
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Notes
- 1.
For historic reviews of Korean law in the late 19th century and the colonial period, see Chongko Choi, Law and Justice in Korea: South and North (Seoul: Seoul National University Press, 2005) at 137~164 (especially, Appendix III of this book providing most books regarding Korean law written in Western languages); Chong-Ko Choi, “Über die Rezeption westlichen Rechts in Korea” in Manfred Rehbinder & Ju-Chan Sonn, eds., Zur Rezeption des deutschen Rechts in Korea (Baden-Baden: Nomos, 1990); Chongko Choi, “Die Rezeption des Deutschen Rechts in Korea” (1985) 5 Journal of Korean and German Law 23; Chongko Choi, “Gaehwagieui Hangook Sangbeophak” [Korean Commercial Law in the Civilisation Period] (1985) 26:1 Seoul L.J. 205; Pyong-choon Hahm, “Reception and Modernization of Korean Law” in Sang Hyun Song, ed., Introduction to the Law and Legal System of Korea (Seoul: Kyung Mun Sa, 1983).
- 2.
Min Beop, Act No. 471 of 22 February 1958 as amended. Tentative English translations of most Korean statutes are available at the website of the Korea Legislation Research Institute, http://elaw.klri.re.kr (login required, but free). Any translation herein is, however, by this author, unless otherwise indicated.
- 3.
For the influence of German civil law on Korean civil law and an introduction to Korean civil law, See Chung Han Kim, “Hangook Minbeopeui Beopjesajeok mit Bigyobeopjeok Yeongoo” [Korean Civil Code from the Perspectives of Legal History and Comparative Law] (1968) 10:2 Seoul L.J. 27; Chung Han Kim, “Hangook Minbeopeui Baljeon - Minbeopjeoneui Jejeonggoa Geu Hooeui Baljeon” [The Development of Korean Civil Law: Legislation History of Korean Civil Code and Its Development Thereafter] (1983) 24:2 & 3 Seoul L.J. 1; Seokin Huang, “Das Bürgerliche Gesetzbuch Koreas - Eine vergleichende Darstellung” in Hans-Jürgen Ahrens et al. eds., Medizin und Haftung: Festschrift für Erwin Deutsch zum 80. Geburtstag (Heidelberg: Springer, 2009); Kyu-Chang Cho, “Koreanisches Zivilrecht und deutsches Bürgerliches Recht” in Manfred Rehbinder & Ju-Chan Sonn, eds., Zur Rezeption des deutschen Rechts in Korea (Baden-Baden: Nomos, 1990); Jonghyu Jeong, “Hangook Minbeopeui Pyeonchangoa Bigyobeopjeok Wuichi - Hanil Beopsahakgyeeui Hyeopryeokeul Gidaehamyeo“[Codification of Korean Civil Code and Its Position from a Comparative Law Viewpoint] (2009) 40 Journal of Legal History 7; Byung-Jun Lee “Zivilrecht” in Korea Legislation Research Institute, ed., Einführung in das koreanische Recht (Heidelberg: Springer, 2010).
- 4.
Theoretically, the principle of abstraction of proprietary juristic acts (Abstraktionsprinzip) is also an important principle in Korean civil law, although there are controversies concerning the principle.
- 5.
Unlike BGB, KCC includes some intangibles within the definition of things. It defines things as tangibles, plus electricity and other natural resources that can be managed (Art. 98 of KCC). In its interpretation and application, the main issue is whether such natural force is capable of being managed, and the management capability of natural forces means the capability of exclusive control over natural forces. Even though there are many manageable natural forces, Korean scholars seem to hesitate to expand the scope of this notion to a wider range of other intangibles; thereby the scope in respect of the definition of a thing is similar to that in BGB. For more details of this issue, see Dae-Heon Bae, “Georaedaesangeuroseo Digital Jeongbowoa “Moolgeon”gaenyeom Hwakdaee Gwoanhan Geomto” [A Study on Digital Information as a Business Object and Expansion of the Legal Concept of Things] (2003) 14 Commercial Case Rev. 301 at 305~308 and 344~346; Young Joon Lee, Minbeop Chongchik [General Rules of Civil Law], 3d ed. (Seoul: Pakyoungsa, 2007) at 985~987; Eun-Young Lee, Moolgweonbeop [Law of Property], 3d ed. (Seoul: Pakyoungsa, 2003) at 36~37; Won Lim Jee, Minbeopgangeui [Lecture of Civil Law], 8th ed. (Seoul: Hongmoonsa, 2010) at paras. 2-154~2-159.
- 6.
As does BGB, KCC stipulates four methods of delivering possession: 1) physical delivery (Art. 188(1)), 2) shorthand delivery (Art. 188(2)), 3) constructive delivery (Art. 189), and 4) assignment of the right to return. All of these methods exactly correspond to those in BGB, Articles 929, 930, and 931.
- 7.
See Art. 467 of JCC. This requirement is a legacy of French civil law; BGB has no such requirement. In order to protect an innocent obligor of the claim, however, Article 407 of BGB stipulates that the innocent obligor’s performance to the assignor may discharge her from the obligation. Through special legislation, nominative claims can now be assigned by registration in Japan. In the near future, in Korea, nominative claims can be collateralised by registration in accordance with a recent special legislation.
- 8.
Heeman Kang, Yoogajeunggweon Daechegyeoljejedo [Securities Settlement System] (Seoul: Yookbeopsa, 1989) at 152~154; Min Suh, “Yoogajeungyetakeui Minsabeopjeok Beopyulmonje” [Legal Issues on Securities Deposit from the Perspective of Civil Law] (1996) 3:2J. Comp. Priv. L. 107 at 125~126; Isu Kim, Jeunggweon Ganjeopboyoo Beoprieui Jaegooseonge Gwoanhan Yeongoo [A Study on Reconstruction of the Legal Theory for the Indirectly Held Securities] (Doctoral Dissertation at the Graduate School of Law of Seoul National University, 2003) at 24.
- 9.
Arts. 70~73 and 407~410. The DRIA also provides to secured parties rights to separate preferential satisfaction without participation in insolvency proceedings (Arts. 411~414).
- 10.
Chaemooja Hwoesaeng Mit Pasane Kwanhan Beopryul, Act No. 7428 of 31 March 2005 as amended. DRIA is an Act consolidating previous insolvency related laws. For details of DRIA, see SooGeun Oh, ed., Korean Bankruptcy Law Symposium (2008) 7:2J. Korean L., all of which articles are available in English. See also Yong-Seok Park, “Unified Insolvency Law of Korea” (2003) 3:2J. Korean L. 161 (providing a detailed overview of the draft DRIA in comparison with the U.S. federal bankruptcy law).
- 11.
Jabonshijanggwa Keumyoongtujaeope Kwanhan Beopryul, Act No. 8635 of 3 August 2007 as amended. CMFIBA took effect on 4 February 2009, replacing the previous Securities Exchange Act. For an overview and legislation history of CMFIBA, see Korea Financial Investment Association, 2009 Capital Market in Korea (Seoul: KOFIA, 2009) at 302~313; Korean Securities Law Association, Jabonshijangbeop Juseokseo [Commentary on CMFIBA], vol. 1 & 2 (Seoul: Pakyoungsa, 2009); Konsik Kim & Sunseop Jung, Jabongshijangbeop [Capital Market Law] (Seoul: Doosungsa, 2009) at 6~16.
- 12.
Jeunggweon Keorae Beop, Act No. 972 of 1962 as amended. The provisions on the intermediated system were in Articles 173 through 178 of a total of 23 provisions of SEA; the new law, CMFIBA, provides 30 clauses for the intermediated system from Articles 294 to 323.
- 13.
The following historical background for the development of the Korean intermediated system is based on the following books: KSD, Jeunggweonyetakwon 25nyeonsa [25 Year’s History of the Korea Securities Depository] (Seoul: KSD, 1999) at 72~83 & 215~251; KSD, Jeunggweongeoraebeop Haeseol: Je8jang Je3jeol Jeunggweonyetakwonpyeon [Commentary on Korean Securities Exchange Act: Section 8-3, Provisions on Korea Securities Depository] (Research Material of 2003, vol. 1, 2003) [SEA Commentary] at 13~17; KSD, Jeunggweon Yetakgyeolje Jedo [Securities Deposit and Settlement System], 2d ed. (Seoul: KSD, 2003) [SDSS 2003] at 62~68; Younghoon Rhee et al., Hangookeui Yoogajeunggweon 100 Nyeonsa [The Centennial History of Securities in Korea] (Seoul: KSD, 2005) at 297~410.
- 14.
Jabonshijang Yookseonge Kwanhan Beopryul, Act No. 2046 of 22 November 1968. This Act was annulled on 1 April 1997.
- 15.
Kieop Gongae Chokjin Beop, Act No 2420 of 30 December 1972. This Act was abolished on 1 January 1988.
- 16.
See KOFIA, supra note 11 at 24~42 for the details of the history of development of the Korean capital market.
- 17.
One of the reasons for this inconvenience is that at that time, Korean corporate law did not adopt the split voting regime. For reference, the split voting regime was introduced in Korea in 1984.
- 18.
More precisely, KSD had already implemented a similar system, the so-called consecutive deposit system, on 30 April 1985, which enabled KSD to keep deposited share certificates in its custody even on record dates, and to exercise rights arising from such shares on behalf of shareholders. The system, however, was performed on a contractual basis between KSD and its participants. For this reason, the ninth amendment to SEA can be regarded as the legal foundation of the current intermediated system in Korea.
- 19.
The old legal framework in Japan was governed by Act on Securities Certificates Custody and Book-Entry Transfer (Act No. 30 of 1984, hereinafter, “old Book-Entry Transfer Act”). As discussed in Chapter 6, Japan dematerialised most capital market securities on 5 January 2009, when the dematerialised intermediated system for shares was implemented. The old Japanese intermediated system directly affected the provisions of the intermediated system in SEA, so that the basic legal concepts such as custody (or deposit), withdrawal, co-ownership, and constructive possession are the same among Korea, Germany and Japan.
- 20.
It is a literal translation of the shiljiljujujedo in Korean. It is often translated as the beneficial owner system or the beneficial shareholder system. However, this could mislead the original meaning of the system, because the term beneficial can allude to a trust relationship between an investor and an intermediary. As the relationship is not of a trust but of a bailment and mandate, even though investors hold shares through their intermediaries, they are still the actual holders of the shares, and the intermediaries are mere securities account book keepers. Additionally, because this system applies only to shares, the translation beneficial owner system is not accurate.
- 21.
As occurred in Japan, the Electronic Short-Term Debt Securities Act is considered as the first stage of the full dematerialisation of investment securities. This Act was submitted by the Government (Ministry of Justice) to the Assembly in 7 April 2010. The Act contains 37 clauses, and electronicises eligible CPs by registering them in the issuer’s account maintained by KSD. A full review of the Act is beyond this book; see Dong Min Park & Hangyong Lee, “Jeonjadangisachaejedo Doipeul Tonghan Gieopeoeumshijang Gaeseone Gwoanhan Yeongoo” [Reforms of Commercial Paper Market by Introducing the Electronic Short-Term Debt Securities System in Korea] (2011) 40:1 Asia-Pacific Journal of Financial Studies 109 for detailed background information on the Korean short-term debt securities market and the overview of the new Act. Parallel with the Electronic Short-Term Debt Securities Act, in March 2011, significant amendments to KCA were made with respect to the Korean corporate law regimes. Among other things, Articles 65(2), 356-2, 478(3) and 516-7 provide the legal foundation for issuance of shares, bonds, warrants, etc. through electronic registration without materialising them in physical securities certificates. These new amendments will be effective on 15 April 2012. As Article 356-2(4) delegates details of electronic registration and other related matters to the Enforcement Decree of KCA, judging from the texts themselves, it is not clear whether the purpose of these Articles is to introduce full dematerialisation or not. In this respect, the proposals made in Chapter 10 are still a viable option for the future intermediated system in Korea.
- 22.
According to the fifth amendment to SEA, the KSD’s prior entity, the Korean Securities Settlement Corporation (KSSC), was established in 1974. In accordance with the eleventh amendment to SEA on 17 December 1993, KSD was transformed into a special public organisation on 25 April 1994. KSD is the sole central securities depository in Korea; Article 298(1) of CMFIBA prohibits anyone from doing book-entry transfer business except for KSD. For a brief overview of KSD and its wide range of services, visit its English website at http://www.ksd.or.kr/eng/main.home.
- 23.
The KRX is the sole official exchange in Korea, incorporated on 27 January 2005 through the merger of three markets: the Korea Stock Exchange, the KOSDAQ and the Korea Futures Exchange. As of 31 October 2011, a total of 1,810 corporations’ shares are listed on the KRX markets, and market capitalisation is 1,183,798,427,704 thousand Korean Won. For more information, visit the KRX’s website at http://eng.krx.co.kr.
- 24.
KSD, supra note 13 at 76~77. One of the advisory committee members, F. W. Curran, recommended to the Minister of Finance to establish a central securities depository.
- 25.
Minsa Jiphaeng Beop, Act No. 6627 of 26 January 2002. Civil Execution Act, previously included in Civil Procedure Act; was separated and became an independent Act in 2002. For details of Korean civil execution law, see Daesung Kang, Minsajiphaengbeop [Law of Civil Execution], 4th ed. (Seoul: Samyoungsa, 2008).
- 26.
Min Suh, supra note 8 at 22; Moontaek Ahn, Jeonggweongeoraebeop Gaeron [Introduction to Securities Exchange Law] (Seoul: Pakyoungsa, 1983) at 304; Chulsong Lee, “Yetakgyeoljejedoeui Seonjinhwoawa Jeunggweonmoogweonhwoareul Wihan Beopjeok Jeongbi” [Legal Reform for Modernisation of the Securities Settlement System and Dematerialisation] in KSD, ed., Jeungshi Hyoyoolhwoareul Wihan Yetakgyeolje mit Moogweonhwoajedo Baljeonbanghyang [Development Directions for the Securities Deposit and Settlement System and Dematerialisation for the Efficiency of Securities Market] (Seoul: KSD, 1996) at 5.
- 27.
Dae Ig Jeong, “Jeunggweon Maemaewitakgoa Jeunggweondaechegeoraeeui Beopjeok Goojo” [Legal Structure of Brokerage Securities Transactions and Book-Entry Securities Transfers] (2003) 15 Commercial Case Rev. 55 at 77~82; Joong-Ho Lim, “Jeunggweondaechegeoraee Itseoseoeui Yoogajeunggweoneui Moogweonhwoa Hyeonsanggoa Geu Beopjeok Moonje” [The Dematerialisation Phenomenon in the Book-Entry Transfer System and Its Legal Problems] (1998) 5:1J. Comp. Priv. L. 383 at 402~404 (Lim limits this opinion when the phenomenon of book-entry transfers is interpreted in accordance with KCC); Isu Kim, supra note 8 at 7; Chulyoung Park, in Korean Securities Law Association, Jabonshijangbeop Juseokseo [Commentary on CMFIBA], vol. 2 (Seoul: Pakyoungsa, 2009) at 619.
- 28.
KSD, SDSS 2003 at 102; KSD, SEA Commentary at 62; Heeman Kang, supra note 8 at 170; Joong-Ho Lim, ibid. at 402 (stating that book-entries between accounts replace delivery under KCC); Hun-Je Suh, “Gimyeongjooshikeui Yangdowa Yoogajeunggweon Beopri” [Transfer of Registered Shares and the Securities Theory] (1990) 90:1 Goshiyeongoo 109 at 113~114.
As an investor has fictitious possession, when her intermediary makes a credit entry to her account, one may think that the Korean intermediated system may also have a concept of notional co-possession at each level of the system, similar to the Belgian intermediated system; thus intermediated securities are disposed of by transfer of this notional possession in the investor’s account, not actual co-possession in the collective securities bulk. However, this notion is incorrect, because Article 311(1) explicitly provides that investors are deemed as possessing those securities, i.e. physical securities certificates.
- 29.
This system was modelled on the old Japanese intermediated system.
- 30.
According to Article 357 of Commercial Act, which contains corporate law, a corporation may issue bearer shares, if its Articles of Incorporation provide so.
- 31.
See Chapter 3. III. A. 2.
- 32.
As the main purpose of Article 4(9) is to apply to a fraudulent activity or other similar wrongful activities for the purpose of securities regulation, this interpretation may not seem natural. This is because if this interpretation is correct, there is no need of debt securities registration law. Besides, if Article 4(9) was applicable to the intermediated system, it was unnecessary to introduce Article 311(4), which provides that book-entry transfers of shares between accounts are effective against the issuer, even before share certificates are issued. The government agent and supervisory bodies have applied Article 4 of CMFIBA even to the intermediated system, only because the relevant provisions of the intermediated system fall within CMFIBA. No government agent nor supervisory body, however, has expressed an official opinion on this matter so far. As a result, it can be viewed as a cause of legal uncertainty.
- 33.
In Korea, the legal concept of global securities certificates is, however, recognised exactly as in Germany.
- 34.
Art. 12(1) of KSD’s Regulation on Issuance, etc. of a Depositary Receipt. Article 12(2) excludes investors’ rights to issue physical KDRs, and provides that KSD may issue a certificate evidencing the holding of KDRs by applicants.
- 35.
For details of the two systems, see KSD, SDSS 2003 at 121 and 476~479; Chan-Hyung Chung, “Jeonjajeunggweonjedoeui Doipe Ttareun Beopjeok Goaje” [A Study on Legal Issues in Relation to Introduction of Electronic Securities System] (2003) 22:3 Commercial L. Rev. 11 at 23~30.
- 36.
Sang Beop, Act No. 1000 of 20 January 1962. For the legislation history of KCA, see Chongko Choi, “Hangook Sangbeopjeoneui Jejeong Goajeong” [Codification Process of Korean Commercial Code] (1991) 9 Commercial L. Rev. 209.
- 37.
KSD requests issuance of least numbers of securities certificates for the sake of preparation for usual return requests; all other newly-issued securities, especially share certificates, are not physically issued, by the KSD’s application of non-holding. Investment corporations’ shares and investment trusts’ beneficiary certificates are issued by way of the blanket deposit system (Arts. 189(3) & 196(2) of CMFIBA); and through the mutatis mutandis application of the share certificate non-holding system under 358-2 of KCA, these shares and beneficial certificates are dematerialised (Arts. 189(9) & 206(2) of CMFIBA).
- 38.
See KOFIA, supra note 11 at 235~260 for details of procedures and regulations for securities transactions by foreign investors.
- 39.
For more details of the foreign investor registration procedure and relevant issues, See FSS, “Guide to Foreign Investor Registration & Foreign Equity Purchase” (2007), available at http://english.fss.or.kr/fsseng/comm/fileDown.jsp?path=pub/spe/FILE_1186114019733.pdf%26btmIndex=167%26filename=Guide%20to%20Foreign%20Investor%20Registration%20%26%20Foreign%20Equity%20Purchase.pdf; KOFIA, ibid. at 235~243; Asian Development Bank, Asian Bond Markets Initiative: Group of Experts (GoE) Report for Task Force 4 (June 2010), Appendix II: Market Profiles at 31~32, available at https://wpqr1.adb.org/LotusQuickr/asean3goe/Main.nsf/h_58E34A1388F9070B48257729000C0A4E/90F408746827C16248257729000C1334/$file/Preface.pdf.
- 40.
ADB, ibid. at 33.
- 41.
Art. 6-22 of RFIB.
- 42.
ADB, supra note 39 at 31 & 37.
- 43.
Ibid. at 33.
- 44.
Article 29(2) requires a Contracting State to recognise both 1) a nominee holding scheme and 2) split voting. However, paragraph 29-25 of the Draft Official Commentary states that a Contracting State must recognise nominee holding or split voting, if securities are held by foreign investors in other countries.
- 45.
This is clear from Articles 63(2) of Enforce Decree of CMFIBA and 4-15(2) of RFIB, which employs a different term, foreign custodian, which includes the concept of a CSD and ICSD; therefore it is a broader concept than a foreign deposit and settlement institution, adopted in Article 296(e) of CMFIBA.
- 46.
The mutual linkage with HKMA was for transactions of debts securities traded in Korea and Hong Kong. Currently, however, there is no actual business in accordance with the linkage with KSD and HKMA. The linkage with JASDEC was actually made with Japan Securities Clearing Corporation (“JSCC”) in 21 December 2001; as a CSD, later, JASDEC undertook all the businesses of JSCC. Even though the custody agreement with JSCC was for a mutual account opening agreement, the agreement provides only the case for an outbound listing i.e. a Korean corporation’s listing on a Japanese market. The preamble of the custody agreement, however, acknowledges a mutual linkage.
- 47.
The name of the ETF is KODEX 200. For detailed news, visit the TSE website at http://www.tse.or.jp/English/news/200711/071119_a.html.
- 48.
Due to globalisation of the Korean securities market, several foreign corporations knocked at the doors of the KOSPI and KOSDAQ Markets. Since the listing on the KOSDAQ of 3NOD Digital, a corporation incorporated in the Cayman Islands on 17 August 2007, as of 31 October 2011, shares of fourteen foreign corporations have been listed on the KOSDAQ and five foreign corporations on the KOSPI Market. Except for two corporations, Huafeng Group Holding Ltd. and NEPRO IT Co., Ltd., which listed their shares in the form of KDRs, all other corporations elected to issue physical securities certificates in Korea.
- 49.
Thrunet was delisted from the NASDAQ as of 1 July 2003, and was merged with SK Broadband in January 2006.
- 50.
Foreign securities means securities denominated in a foreign currency or paid in a foreign country (Art. 3(1)(h) of Foreign Exchange Transaction Act).
- 51.
Financial investment business firms are firms doing a business of financial investment, meaning a continuous or repetitive activity to make profit, as one of the following categories of businesses: 1) investment dealing, 2) investment brokerage, 3) collective investment, 4) investment advisory, 5) entrusted investment, or 6) trust (Art. 6(1) of CMFIBA).
- 52.
However, a financial investment business firm which concurrently runs other financial business, such as banking or insurance, is not obliged to deposit its own foreign securities with a foreign custodian, and can deposit them with any foreign custodian appointed by itself (Art. 61 of CMFIBA).
- 53.
Only a recent book published by a KSD staff member briefly addresses this issue, supporting the German trust model. See Hangjin Huh, Gookje Jeunggweonshijangeui Beopgoa Shilmoo [The Law and Business Practice of International Securities Market] (Seoul: Sechang Publication, 2009) at 298~299.
- 54.
As Article 10(3) of RCSFS tries to specify the most favourable legal regime for investor protection, it does not seem that the legal nature of foreign securities credited to an account is characterised as a mere contractual relationship. Needless to say, there is such a possibility.
- 55.
Act No. 900 of 30 December 1961. Unlike Germany, Korea has a statutory trust law, similar to Japan. Under Article 51 of Trust Act, a beneficiary of a trust has a beneficial interest (sooikgweon), and its legal nature is not a mere claim. For more details of the law of trust in Korea, see Dongsik Choi, Shintakbeop [Law of Trust] (Seoul: Beopmoonsa, 2006).
- 56.
See Chapter 3. II. C. 2.
- 57.
Articles 19(1) and 40(2) of RCSFS. If the pledgee applies, she must receive consent of the pledgor (Art. 19(1)).
- 58.
Although it may sound strange, if an investor is willing to create a pledge at the level of KSD, when the investor’s application for pledge is received, first, the relevant intermediary of the pledgor-investor makes a designating entry to the pledgor’s account, and then, second, KSD makes another designating entry to the intermediary’s customer account (Art. 40 of RCFS). This practice seems to derive from the unreliability of securities firms, when the foreign securities pledge system was established.
- 59.
As mentioned, as provisions of CMFIBA precondition collective custody, the provisions do not say further for collective custody. Here, for the correct understanding, the phrase for collective custody was inserted, and hereinafter the term custody or deposit means collective custody or deposit.
- 60.
KSD, SDSS 2003 at 116.
- 61.
Even though corporations can issue bearer shares under Article 352(2) of KCS, all shares issued in Korea are, practically, registered shares, so that shareholders should register their name on the shareholders’ book maintained by the issuers in order to exercise their rights as shareholders. This practice of issuing registered shares seems to be an influence of Japan in the late 1800s. In Korea, modern stock corporations began to be established in 1896 (Younghoon Rhee et al., supra note 13 at 60).
- 62.
See Article 336(1) of KCA. Transfer of shares takes effect against any third party except the issuer by delivering share certificates (Art. 336(1) of KCA). To be effective against the issuer, however, the shareholder should register her name and address on the shareholders’ book (Art. 337(1)).
- 63.
See Youngil Min, in Yoonjik Kwagh, ed., Minbeop Joohae [Commentary on Civil Code], vol. 5 (Seoul: Parkyoungsa, 1992) at 541 and 546~547 for more explanation as to the legal nature of co-ownership in Korea.
- 64.
Ibid. at 546.
- 65.
Heeman Kang, supra note 8 at 85. This provision is modelled on Article 16(4) of the old Book-Entry Transfer Act of Japan, and it is known that Japan referred to Article 10 of the Netherlands’ Book-Entry Transfer Act.
- 66.
Jae-Ok Chang, “Yetakyoogajeunggweoneui Hongjang Gongyoojibooneui Yangdowa Seoneuichuideuk” [Transfer and Innocent Acquisition of Co-ownership Interests in Deposited Securities] (1996) 3:2J. Comp. Priv. L. 129 at 137. It is, however, doubtful to interpret the issue like this. It would be better to understand that the timing of co-ownership acquisition by an intermediary is the moment when KSD receives securities from the intermediary, and is ready to deposit the securities, after examining eligibility of custody and other necessary things, such as stolen or counterfeited securities. In short, it seems that the better interpretation should be the same as the German approach, insofar as the intermediary’s own securities. Since deemed deposit is intended to better protect investors, protecting intermediary-investors also should be determined from the viewpoint of which method protects intermediary-investors better.
- 67.
See Chapter 3. III. B. 1.
- 68.
Where an intermediary becomes insolvent, dissolute or in a similar situation, or authorization, permission or registration of the intermediary is cancelled, KSD may restrict withdrawal or book-entry transfer of investors’ securities (Art. 312(3) of CMFIBA and Art. 314 of Enforcement Decree of CMFIBA).
- 69.
Article 317 of CMFIBA provides that any necessary matters for civil enforcement, enforcement of provisional attachment, or disposition or auction of deposited securities are specified by a Supreme Court Rule, and Articles 176~185 of Supreme Court Rule for Civil Execution (Minsajiphaeng Gyuchik, Act No. 1762 of 28 June 2002) provide for specific rules. For the civil execution procedure of deposited securities, See National Court Administration, Yetakyoogajeunggweon Minsajiphaenge Goanhan Minsasosonggyoochik Haeseol [Commentary on Civil Procedure Rules Regarding Civil Execution of Deposited Securities] (Seoul: NCA, 1992); Daesung Kang, supra note 25 at 525; KSD, SDSS 2003 at 137~139.
- 70.
In Korea, as in Germany, it is a common view that a right to return is a prerequisite for creation of an indirect possession relationship (Byoung Jo Choe, in Yoonjik Kwagh, ed., Minbeop Joohae [Commentary on Civil Code], vol. 4 (Seoul: Parkyoungsa, 1992) at 312).
- 71.
The actual shareholder system was introduced by the ninth amendment to SEA on 28 November 1897.
- 72.
See KSD, SDSS 2003 at 104~106; Min Suh, supra note 8 at 119~120.
- 73.
For administration purposes, however, investors of shares cannot exercise rights in relation to application for the non-holding of share certificates, registration on the shareholders’ book, and other rights related to share certificates (Art. 315(2)).
- 74.
An issuer may also request the actual shareholders’ list in the case of a takeover bid (Art. 315 of CMFIBA).
- 75.
Art. 31(3) of DRSCS. In the case of annual general shareholders’ meetings or interim dividends of investment corporations, the deadline is within six business days.
- 76.
Since voting requires physical attendance at the meeting, KSD does not provide that service. However, for foreign investors, KSD attends shareholders’ meetings and exercises voting rights, where the foreign investors’ custodian requests KSD to do so, with payment of nominal fees.
- 77.
Where issuers are investment corporations, KSD cannot exercise voting rights at all (Art. 314(5)(e)).
- 78.
For more details of the KSD’s shadow voting methods, see KSD, SDSS 2003 at 163~165. See also Chulsong Lee, supra note 26 at 27~32 for a critique of the KSD’s shadow voting scheme. For reference, according to a recent legislation notice by the Financial Supervisory Commission, the KSD’s shadow voting scheme is supposed to be abolished as of 1 January 2015, due to its side effects that the scheme abridges the rights of minority shareholders, and impedes corporate transparency and active shareholders’ meetings, distorting sound corporate governance (FSC Notice No. 2011-119, 27 July 2011 at 4).
- 79.
Unlike Article 67(2) of AktG, in which only shareholders whose name and other relevant information are recorded to the shareholders’ register are viewed as shareholders, and thus a record to shareholders’ register has a constitutive effect, the shareholders’ book in Korea has no such effect. Accordingly, even though shareholders are not registered on the shareholders’ book, they can claim their rights against the issuer. If the issuer does not recognise their status as shareholders, the dispute should be settled in a court. The Korean Supreme Court’s decision is to recognise the shareholder’s status, even if an investor is not registered on the shareholders’ book. For more details of this issue, see Han Jun Choi, “Sangbeop Je337jo Je1hangeui Haeseoksang Moonjejeomgoa Ipbeopronjeok Jeeon” [Interpretative Problems of Article 337(1) of Commercial Act and a Legislative Proposal] (1995) 3 Ahnam L. Rev. 685.
- 80.
Arts. 46(3) & (5) of RSCS. The following shares are excluded from the number of shares for which an investor or an intermediary may apply for an actual shareholder certificate: pledged shares, undisposible shares due to attachment, etc., shares which have been subject to appraisal rights, and shares being applied for securities lending. Where the pledgee agrees that she will not exercise her rights as a pledgee, pledged shares can be included in the number (Art. 35 of DRSCS).
- 81.
Art. 32(2) of the Enforcement Rule of CMFIBA and Art. 46 of RSCS.
- 82.
Art. 32(3) of the Enforcement Rule of CMFIBA and Arts. 46(3) & (4) of RSCS.
- 83.
Art. 32(3) of the Enforcement Rule of CMFIBA and Arts. 46(4) & (5) of RSCS.
- 84.
See Chapter 6. IV. E. 3.
- 85.
Dae Ig Jeong, supra note 27 at 63~75.
- 86.
KSD, SEA Commentary at 63; Heeman Kang, supra note 8 at 171.
- 87.
See Chapter 3. IV. A. 1.
- 88.
Previously, Article 174-3(2) did not provides book-entries between accounts but merely book-entries without mentioning between accounts, so that such an interpretation as book-entry transfer between columns was not impossible, though it is not natural.
- 89.
See Chapter 3. IV. B.
- 90.
See KSD, SDSS 2003 at 103~104; Joong-Ho Lim, supra note 27 at 412~413; Heeman Kang, supra note 8 at 171~172; Jae-Ok Jeong, supra note 27 at 17; Dae Ig Jeong supra note at 83; Hun-Je Suh, supra note 28 at 115.
- 91.
For a comparative study of innocent acquisition of movables, see Sang-Yong Kim, “Dongsan Moolgweoneui Seoneuichuideuke Goanhan Handok Bigyo” [A Comparative Study of Innocent Acquisition of Rights in Rem in Korean and German Civil Code] (2008) 18:4 Yonsei L. Rev. 1.
- 92.
Kiwon Choi, in Yoonjik Kwagh, ed., Minbeop Joohae [Commentary on Civil Code], vol. 11 (Seoul: Parkyoungsa, 1995) at 498; Sang-Yong Kim, Chaegweon Chongron [Generalities of Law of Obligations], 4th ed. (Pajoo: Bobmunsa, 2006) at 409.
- 93.
Article 359 of KCA applies Article 21 of Checks Act which provides innocent acquisition of checks.
- 94.
Eoeum Beop, Act No. 1001 of 20 January 1962. Article 16(1) stipulates that if an exchange bill holder proves her rights by way of continuation of endorsement, she is presumed to be a legitimate holder. Article 16(2) provides that irrespective of a reason for losing possession of an exchange bill, if the holder of the exchange bill proves her right grounded on Article 16(1), she is not obliged to return the bill, provided that the same does not apply, if the holder acquired the bill in bad faith or gross negligence.
- 95.
Soopyo Beop, Act No. 1002 of 20 January 1962, Article 21 of Checks Act also provides a similar rule provided in Article 16(2) of Bills Act. Article 19 of Checks Act is a parallel provision of Article 16(1) of Bills Act.
- 96.
Kiwon Choi, supra note 92 at 499~504; Chanhyung Jung, Eoeum Soopyo Beop Gangeui [Lecture on Bills and Checks Law], 3d ed. (Seoul: Hongmoonsa, 1998) at 429~435; Chulsong Lee, Eoeum Soopyo Beop [Law of Bills and Checks], 9th ed. (Seoul: Pakyoungsa, 2007) at 322~336.
- 97.
In Korea, the position of the majority view and the Supreme Court is to recognise innocent acquisition, where the transferor is an incompetent person as well as a person who has no right or power to transfer (Kiwon Choi, ibid. at 501; Chanhyung Jung, ibid. at 431).
- 98.
KSD, SDSS 2003 at 103; Heeman Kang, supra note 8 at 172; Jae-Ok Chang, supra note 66 at 17.
- 99.
Jae-Ok Chang, ibid. at 16; Isu Kim, supra note 8 at 7~8; Dae Ig Jeong, supra note 29 at 82; Injae Lee, in Yoonjik Kwagh, ed., Minbeop Joohae [Commentary on Civil Code], vol. 5 (Seoul: Parkyoungsa, 1992) at 442.
- 100.
Joong-Ho Lim, supra note 27 at 413; Dae Ig Jeong, ibid.; Jae-Ok Chang, ibid.; Heeman Kang, supra note 8 at 172.
- 101.
See Chapter 3. V. A. for a similar discussion.
- 102.
Dae Ig Jeong, supra note 29 at 83~84 & n. 73.
- 103.
Similar to Article 166 of BGB, Article 116 of KCC provides that the legal effect of a declaration of intent is determined based on the agent, and the principal cannot claim her agent’s innocence for her with respect to a circumstance that she knew or negligently did not know. Accordingly, as in Germany, both the transferee and her intermediary should be innocent or without gross negligence.
- 104.
KSD, SDSS 2003 at 103; Jae-Ok Chang, supra note 66 at 146~147; Heeman Kang, “Yoogajeunggweon Daechegyeoljejedowa Seoneuichuideukeui Beopironjeok Gochal” [A Theoretical Study on Book-entry Transfer System and Innocent Acquisition] in Festschrift for Prof. Don Gak Suh’s Retirement (Seoul: Bobmunsa, 1986) at 125.
- 105.
KSD, SEA Commentary at 71.
- 106.
KSD, SDSS 2003 at 135.
- 107.
Ibid. at 71~72.
- 108.
KSD, SEA Commentary at 72.
- 109.
See Chapter 10. II. for proposals for legal reform of the current Korean intermediated system.
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Chun, C. (2012). Chapter 5. The Intermediated System in Korea. In: Cross-border Transactions of Intermediated Securities. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-27853-2_6
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