How to trade South Korean stocks as a foreign investor
Samsung. SK Hynix. LG Electronics. Hyundai. These are some of the major companies that are listed on the Korean stock exchange (KRX). Unfortunately, there’s a few barriers to investing in this awesome market that prevent many retail investors from being able to buy these companies’ stocks. Instead, most US investors end up settling for the small subset of companies that are listed on the US market as an ADR or ETFs that are managed by firms.
That said, it is still possible to invest in the Korean stock market! 9,327 foreign retail investors had been registered with South Korea’s Financial Supervisory Service (FSS) by the end of 2011 — given that this figure is quite outdated, it’s very likely that this number has jumped significantly since then. This article summarizes the key points about registering as a foreign investor, taken mainly from this Guide to Investing in Korea as well as a few other references.
1. Designate a local custodian bank.
The first thing you need investing in KRX is to decide on a source of funds. Therefore, you should designate a local custodian bank in your country which provides custody, money transfer, and security settlement services. Notable custodian banks in the United States include Bank of New York Mellon, JPMorgan Chase, State Street Bank and Trust Co., and Citigroup.
2. Designate a local agent (standing proxy).
Foreign investors should appoint a local agent (also known as a standing proxy) in Korea to conduct trading processes on their behalf. The local agent can be the Korea Securities Depository (KSD), a foreign exchange bank, a dealer/broker, or a collective investment business entity. The Guide to Investing in Korea linked above also mentions that a “foreign custodian” can act as the local agent; it is thus unclear whether the local custodian bank mentioned in Step 1 can act as the local agent as well (please leave a comment on this post if you happen to know!).
Note that technically, a standing proxy is not needed — however, the only other ways to get further down the road in investing in Korea is to either (1) visit the Korean FSS in person or (2) appoint a personal agent (law firm, etc.) to conduct the required jobs for you. Because this article is targeted at the common individual who is looking to conduct all processes electronically through a financial institution, we strongly recommend that you go ahead and appoint a local agent or standing proxy.
It should be noted that you’ll probably need to fill out Standing Proxy Agreement / Contract of some sort. Samsung Securities has a list of documents you need to submit to get started in investing with them. Also, most English website interfaces for the local agents are outdated, meaning you should try calling them — most local brokers in Seoul can assist you with the entire process outlined in this article and help you open an account with them.
3. Complete and submit a FIRA Form.
In order to invest in Korea as a foreigner, you need to have an Investment Registration Certificate (IRC). To get this, you need to fill out a Foreign Investment Registration Application (FIRA) and also send in supporting identifying documents (usually a copy of your passport) to the FSS. The application itself can be found here. All documents that are sent in electronically (such as your passport copy) should also be notarized.
It should be noted that in the Guide to Investing in Korea, it says the FIRA may be filed electronically to the FSS through the local agent. The IRC is then issued back electronically. Thus, it is likely that the local agent will guide you through this process — make sure to contact them and get their help in obtaining an IRC.
The IRC you receive has a unique identification number. With that, your records will now be registered in the foreign investment register, and you will be able to legally trade securities.
4. Open a trading account
Using the IRC, you will be able to to open a trading account through a securities company that has obtained KRX membership. It seems that the KRX member with which you open a brokerage account can also be the local agent, such as in the case of Samsung Securities (again, please comment and let me know if there is any incorrect information.
The licensed KRX member institutions can be found at the following link. See the diagram below for a high-level overview of how one can go about participating in the KRX market:
And voilà! You’re now able to trade on the Korean stock exchange.