The Act on Issuance and Trading of Electronic Short-Term Bonds and the Enforcement Decree thereunder (together, the “Act”) come into force on January 15th, 2013. The objective is to implement the scope, registration methods and procedures for issuance and trading of electronic short-term bonds, together with other more detailed matters required for enforcement of the Act.

The Act was enacted to introduce the electronic short-term bond as a new financial instrument to take the place of commercial paper (CP) in the hopes of improving upon the inefficiencies of physical issuance and lack of information transparency associated with CP issuances. Electronically issued short-term bonds, which can be denominated in minimum units of KRW100 million (unlike their CP predecessors, which could not be divided into integral multiples) are expected to revitalize the capital market through freer tradeability.

Electronic short-term bonds do not have equity-related rights and must be issued in units of KRW 100 million or more, with maturities of not more than 1 year and must be unsecured. They are simplified forms of bonds with rights and obligations similar to CP, and are not subject to he Commercial Code requirements for maintenance of a bond register or convening of bondholders meetings due to their short-term nature. The representative director of a company may also be delegated the authority to issue electronic short-term bonds within an amount falling within the aggregate issuance ceiling determined by the company’s board...