Electronic trading planned

The Financial Services Commission (FSC) announced plans for an electronic trading platform to trade securities including stocks and bonds electronically to improve transparency in the market.

The paperless trading system is also intended to reduce the cost of printing physical securities, prevent the loss of paper securities and reduce financial fraud such as tax evasion and embezzlement, the state financial watchdog said.

The commission will introduce a bill dubbed “The electronic securities act” to be enacted as early as 2020.

“We want to boost effectiveness and transparency in the trading market,” said Kim Hak-su, an FSC official, at a briefing on Thursday. “With an aim to introduce a bill to a plenary session this year, we will take steps for legislation.”

Under the paper-based system, all traders must deposit their securities with the Korea Securities Depository, a government-run organization in charge of publishing and managing paper securities for trading.

The paper-based depository system led to many financial crimes such as fabrication, embezzlement or trading behind-the-scenes for tax evasion purposes, the FSC said.

For instance, the FSC said it found an executive of a company embezzled stocks in the company worth about 25 billion won ($22 million) and deposited the amount as paper securities after the company owner died.

A chairman of another company evaded about 4.1 billion won in inheritance taxes by receiving dividends from stocks reserved in paper form at the company that his father owned before he died.

The amount of securities that were lost or fabricated in 2013 reached 5.25 billion won for stocks, 7.07 billion won for bonds, and 2.46 billion won for Certificates of Deposit (CD), according to the commission.

The FSC said most securities will be under the electronic trading system, including equity securities, debt securities and derivatives-linked securities. Although CDs are not classified as securities under Korea’s Capital Markets Act, they will be subject to electronic trading, the commission said.

Several securities, however, will be excluded from the platform, such as commercial paper.

The commission said authorities expect the paperless platform to save a total of 435 billion won in costs of publishing and managing paper securities over the first five years. Since Denmark first adopted an electronic trading system in 1983, most of the 34 OECD countries launched such platforms except for Korea, Germany and Austria.

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]