KSD "Still Holding Physical Stock Certificates? Beware of Loss of Validity"

[Asia Economy Reporter Oh Ju-yeon] Since September last year, the era of electronic securities has begun in the domestic capital market, replacing paper securities. Listed stocks are mandatorily converted to electronic securities, and unlisted stocks are converted to electronic securities only for issuing companies that have applied for electronic securities conversion. Accordingly, physical stock certificates of issuing companies subject to mandatory electronic registration and unlisted issuing companies that have applied for electronic registration have lost their validity and cannot be traded or transferred. However, there are still some investors holding these physical stock certificates, so caution is required.

On the 18th, the Korea Securities Depository (KSD) announced that investors who continue to hold physical stock certificates converted to electronic securities even after the system implementation must be fully aware that, according to the Electronic Securities Act, the validity of the physical stock certificates is lost from the system implementation date, making trading and transfer of the physical stock certificates impossible.

Investors holding physical stock certificates must visit the name transfer agency companies (Korea Securities Depository, KB Kookmin Bank, KEB Hana Bank) and transfer the certificates to their securities company account under their own name. Also, to transfer stock certificates registered in a special account to a securities company account under their own name, the physical stock certificates must be submitted. If the physical stock certificates are under another person's name, documents proving lawful acquisition of rights before the system implementation, such as sales contracts, gift contracts, or court rulings, must be submitted along with the certificates.

However, to protect the property rights of right holders who cannot submit such proof documents in principle, for one year from the system implementation date, right holders with claims under 10 million KRW can submit transaction payment transfer statements or written pledges and transfer the certificates to a securities company account under their own name.

In addition, issuing companies converted to electronic securities must no longer issue physical securities. For listed companies mandatorily converted to electronic securities, to newly issue electronic securities, they must submit articles of incorporation that include the basis for electronic registration issuance of stocks.

Meanwhile, unlisted issuing companies newly participating in the electronic securities system must comply with procedures necessary for electronic registration application, such as appointing a name transfer agency and amending the articles of incorporation.

In particular, investors must be notified and publicly announced for more than one month that the physical stock certificates subject to conversion lose validity from the reference date, that electronic registration accounts must be notified to the issuing company and physical stock certificates submitted by the last business day before the reference date, and that electronic registration will be based on the rights holders listed in the shareholder registry as of the last business day before the reference date.

A KSD official stated, "To transform the domestic capital market from paper securities-based to electronic securities-based, understanding and active participation of investors, issuing companies, and all capital market participants are essential," adding, "We hope that through active interest and participation of investors and issuing companies, the electronic securities system will be stably established and further revitalized in our capital market."