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Action plan for sound underwriting practices

Ji Yeoun Kim

In order to promote investment banking activities and investor protection, the Korean Financial Supervisory Service (FSS) has announced the introduction of various measures which are designed to improve underwriting practices.

It has been anticipated from October 2011 that the FSS and other associated governmental authorities will amend applicable regulations on the process of underwriting in the corporate bond primary market in the near future, namely to require lead arrangers to conduct due diligence on the issuers and to carry out mandatory demand forecasting.

The FSS also recently announced a formal action plan which includes a survey, guidelines, and ways to support underwriters to improve their operations. Between November 2011 and April 2012, securities companies, as licensed underwriters, will be required to participate in a survey which is conducted by the survey team made up of staff from FSS and the Korea Financial Investment Association (Kofia).

For the survey, 51 securities companies engaged in the underwriting business in Korea (as of June 30 2011), including subsidiaries or branches of foreign securities companies, will be classified into three groups based on size, performance and other criteria. The survey will be conducted by way of documentary and field research as well as interviews in relation to the internal systems of individual companies and their market practices.

Based on the outcome produced by the survey, the FSS and Kofia will propose a set of best practice guidelines on underwriting rules and internal standards to each of the groups.

The FSS’s plan is to publish interpretations and guidelines in accordance with market conditions and follow-up amendments to the regulations. It is also expected that Kofia will operate programmes to provide training to the employees of underwriters, and also promote and encourage securities companies to operate internal education programmes.

Ji Yeoun Kim

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