SOUTH KOREA Law and Practice Contributed by: Jongbaek Park, Seungil Hong, Seyeong Im and Eric Jeong, Bae, Kim & Lee LLC
6.5 Order Handling Rules According to the standard internal control criteria for financial investment companies presented by the Korea Financial Investment Association, if a financial investment company is entrusted with the sale and purchase orders for customers, the following princi - ples should be complied with: • The company should handle orders in a fair way and on the basis of the principle of good faith. The company should not obtain or allow any third party to obtain benefits by harming the interests of the investors without any justifiable reasons. • The company has a fiduciary duty of care to set up a system for taking and handling customers’ sale and purchase orders in a prompt, fair and accurate way and an internal control system for inspection and verification. • The company should provide explanations to cus - tomers so that they can understand the methods of ordering, methods of handling and the terms and conditions of services provided, etc and allow them to independently make the relevant decisions. • The company should receive customers’ sale and purchase orders in a fair and safe way for each method of ordering. It should also verify whether the person placing an order has the legitimate authority to make the order upon receipt of it. Cryptocurrency exchanges are, in principle, prohib - ited under the AML Act from sharing order books with other cryptocurrency exchanges. The sharing of order books refers to an act of matching bid or ask prices and concluding transactions by sharing order books between cryptocurrency exchanges. However, a VASP is permitted to share order books if: • the other party is a VASP that has obtained author - isation in Korea or another country and performs money laundering prevention obligations; and • the VASP can verify information on the counter - party customers of the other VASP with which the customers of the VASP trade. 6.6 Rise of Peer-to-Peer Trading Platforms In terms of markets for trading financial investment products, only those authorised in line with the FSC - MA, such as the KRX and ATS mentioned in 6.1 Per-
missible Trading Platforms , are permitted. Although interest in P2P platforms for brokerage of unlisted stocks has emerged in recent years, the compliance with laws varies depending on specific trading meth - ods and business models. The markets for trading virtual assets are mainly facili - tated by centralised exchanges (server-client model, ie, exchanges broker investors’ transactions on vir - tual assets). The FSS has stated that if the operating entity controls the decentralised exchange and pro - vides services as deposits, loans or staking of virtual assets, then these services provided by a decentral - ised exchange will fall within the scope of buying or selling, exchanging, transferring, safekeeping and administrating, etc of virtual assets and the VAUPA and the AML Act will apply. 6.7 Rules of Payment for Order Flow There are no specific regulations on payment for order flow in Korea. 6.8 Market Integrity Principles The FSCMA prohibits the use of material non-public information of a listed company for the sale and pur - chase of securities (insider trading). The FSCMA also prohibits market manipulation and market disturbance as well as unfair trading activities, such as utilising an unfair scheme in connection with the trading of finan - cial investment products. The VAUPA also prohibits the use of material non- public information of virtual assets for the sale and purchase of virtual assets (insider trading). In addition, the VAUPA prohibits market manipulation and market disturbance. 7. High-Frequency and Algorithmic Trading 7.1 Creation and Usage Regulations The KRX made some amendments to the Securities and Derivatives Markets Business Regulation in 2023. The aim was to improve the risk management regime of the capital market in Korea.
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