Financial stability is a prerequisite to innovation and inclusive finance policies. FSC maintains close market monitoring for any signs of market volatility and works to ensure stability in the financial markets. There are risk factors originating from abroad and from within. FSC focuses on making our economy more resilient from external shocks, such as a disruption in the global supply chain, and supporting Korea’s material, component and equipment industries to help boost their global competitiveness. Internally, FSC is closely monitoring the trends in household debt and seeking reforms to corporate restructuring in order to prevent domestic risk factors from turning into systemic risks. Policies aimed at increasing financial stability also include enhancing fairness in the financial markets by introducing a comprehensive legal framework for the supervision of financial conglomerates, improving market discipline and promoting transparency in corporate disclosure and accounting practices.
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Apr 23, 2009
- Restructuring Plans for the Shipping Industry
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Mar 31, 2009
- The Bank Recapitalization Fund - 1st Round Purchase
- On March 31, the Bank Recapitalization Fund Oversight Committee announced that the first round of bond purchase was completed. The total amount of purchase completed, both hybrid and subordinated bonds issued by 8 financial institutions, is KRW3.956 trillion out of the total ceiling amount, KRW 12.3 trillion, set for the first round of support- Hybrid Bonds: KRW 3,453 billion- Subordinated Bonds: KWR 503 billionAdditional bonds from applying banks will be purchased according to their access limit. An MoU is to be signed between the government and each participating bank in order toensure each bank’s full commitment to providing active support to the real economic sectors while prescribing against the government’s management intervention.The government will conduct follow up monitoring for all participating banks as to their commitment to supporting the economy, regardless to their actual use of the Fund.Meanwhile, in order to prevent the Fund from being concentrated in one particular industry, the Fund Oversight Committee will set an industry-based quota for the support from the participating banks.To those banks deemed lagging behind their MoU commitment to supporting the real economic sectors, punitive measures will be applied on the next round of bond purchase such as limiting the amount of purchase, lowering their total access limit, and raising applicable interest rates.* Please refer to the attached PDF for details.
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Mar 30, 2009
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Mar 27, 2009
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Mar 13, 2009
- Preemptive Initiatives to Safeguard the Soundness of Financial Instituitions
- 1. BackgroundAmid deteriorating financial climate in the global economy, much uncertainty in global financial markets has also escalated. Thus, the Korean economy is likely to suffer a prolonged recession, potentially triggering an economic vicious circle starting with corporate and house-hold loan defaults which may hurt the financial sector’s soundness and weaken their lending and overall financial intermediary functions, consequently exacerbating the overall economic basis.Meanwhile, major economies are in the process of preparing or already implementing preemptive measures to support their financial industries by cleaning up non-performing loans and recapitalizing so as to strengthen its intermediary role of supporting the real economic sectors.Notwithstanding Korea’s economy’s relatively strong position, in order to be better prepared for potential risks in case of further deterioration of global market conditions, the government has decided to take preemptive initiatives to strengthen financial institutions’ intermediary functions and to eliminate any potential sources for systemic risks.To do so, early resolution of NPLs in the financial industry has to be preceded to help ascertain its overall soundness. For this, the government already announced its plan to set up a Restructuring Fund under KAMCO in February. On March 13, the government unveils its additional plan to enhance existing regulations to facilitate the government’s rendering greater support to financial institutions in need of further recapitalization. Improved regulations will also allow for launching a government-guaranteed KAMCO bonds in the total amount of KRW 40 trillion. The bills proposing these initiatives will be submitted to the National Assembly in April.Under these new initiatives, financial institutions’ soundness will greatly improve and their ability to shore up real economic sectors will also be strengthened.For the same purpose, the Bank Recapitalization Fund has alre
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Mar 05, 2009
- Restructuring of Shipping Companies
- 1. BackgroundIn recent years, shipping companies have continuously grown in size* driven by drastic rise in freight rates (Baltic Exchange Dry Index (BDI)).Starting from the end of last year, the business environments have gotten drastically worsened with sudden freefall of freight rates. Consequently, many had to curtail their operations and some became insolvent.For instance, Samsun Logics, the 9th biggest in terms of asset size, filed for petition for a rehabilitation program in February.Although the freight rates have gone up a bit lately, up to 2,084 by March 4, due to prevalent oversupply, a recovery in full scale is deemed difficult.As such, there has been some concern about increasing insolvency among shipping companies as it might burden other related industries, especially shipbuilding or financial companies. Furthermore, their insolvency can be easily spread over to the overall shipping industry because of the complex, multi-layered chartering contracts.Most certainly, if the number of chartering contract cancellation continues to increase, then shipbuilding and financial companies will inevitably face the risk. Therefore, the following restructuring plans, which are to be carried out on a day-to-day, ongoing basis, will help contain increasing insolvency in the shipping industry and to revamp the industry so as to strengthen its competitiveness in the global market.2. Restructuring PlansA. Continuous restructuring of shipping companiesIn line with the existing corporate restructuring procedures* supported by the Corporate Restructuring Promotion Act, creditor banks will conduct credit risk assessment of subject shipping companies on an ongoing basis.*Already, companies whose total loans amount to KRW 50 billion or more are subject to annual mandatory credit risk assessment, due June every year, by their creditor banks.To facilitate the restructuring process, creditor banks will be advised to complete risk assessments by early May this year for shipping c
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Feb 25, 2009
- Bank Recapitalization Fund Formation and Operation
- Amid global economic crisis, banks need to take more aggressive roles in supporting real economic sectors and corporate restructuring in a concerted effort to overcome the financial turmoil without hurting Korea’s economic growth potentials.From this perspective, since the beginning of the second half of last year, the government has been raising the issue of launching the Bank Recapitalization Fund as a way to boost banks’ funding and loss bearing capacities.In its report to the President on the annual work plan, the Financial Services Commission announced its plan to form the Fund so as to enable banks to take upon the leading role in shoring up real economic sectors and the on-going restructuring programs.To maximize the effect of the Fund, the government has encouraged banks to provide their feedback on the plan, and based on the ideas gathered thus far, following detailed plans have been finalized.I. Progress in the formation of the FundIn December 2008, the government announced the plan to set up Bank Recapitalization Fund in the amount of 20 trillion won.On February 15, 2009, banks’ CEOs and the regulators met and ran a joint workshop regarding the plan as to ways of making best use of the Fund in providing liquidity to the real economic sectors and their restructuring. General consensus has been reached that banks will be able access the Fund within their credit limits, and banks are free to decide on how to use the funds.Commercial banks, holding companies as well as Industrial Bank of Korea, NACF, and NFFC can apply for the fund.Some recommended usage:a. In support of real economic sectors: by extending new credit lines or roll-overs to SMEs, funding to credit guarantee schemesb. In support of corporate restructuring programs: new credit extension to or funding for the debt-to-equity swap of companies under workout programs, capital injection to the Corporate Restructuring Fund (KAMCO)c. In support of PFs or NPL write-offsOn February 25, 2009 at the
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Feb 19, 2009
- Corporate Restructuring Strategic Directions
- Amid the global financial crisis, with acute awareness of the importance to revamp the overall economic structures in an effort to prevent spread of financial defaults in the markets, the Korean government has decided to pursue quick and effective restructuring measures.The market environment of current crisis, however, is different from that of the 1997 Asian crisis in that there are no major defaults realized in the market, and this makes it more difficult for the government to push forward with one time, full-fledged corporate restructuring as back then.Also, as the global economy has uniformly entered a drastic downturn, the expected efficacy of corporate restructuring progrmas especially in eliminating market uncertainty appears rather limited.With such understanding, the Korean government has built the consensus for the importance of taking clear stances and establishing firm principles in pursuing corporate restructuring in order to maximize the change of its successful outcome.Accordingly, the officials from relevant ministries worked jointly to draft restructuring strategic directions and key action plans, and they were finalized on February 19, 2009 through the discussions at the Presidential Economic Crisis Management Committee meeting.* Please refer to the attached PDF for details.
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Feb 12, 2009
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Jan 20, 2009
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Dec 26, 2008
- “BANK CAPITAL EXPANSION FUND(A TENTATIVE TERM)” SCHEME
- Mainly led by the BOK in consultation with the FSC, the plan to set up the “Bank Capital Expansion Fund” of KRW20 trillion is currently under close review. The target date is January 2009.The fund is not obligatory for commercial banks to subscribe to; it is entirely up to individual banks to decide whether to utilize the Fund.1. Funding SchemeThe capital needed to establish the "Bank Capital Expansion Fund" will be generated from the BOK (approx. KRW10 trillion in loans), investors including institutional investors (approx. KRW8 trillion in investment), and the Korea Development Bank (approx. KRW2 trillion in investment).Funds will be raised on a capital call basis: for each subscription by banks the investing parties will inject the funds in proportion to their commitment ratio.The BOK is currently reflecting on optimal ways to supply funds to the Bank Capital Expansion Fund. Details including the exact amount are to be discussed with the FSC before issuing the finalized scheme.Meanwhile, the government plans to encourage investments from both private and institutional investors in January, reassuring them of the Fund's stability and profitability.2. Management of the FundWhen a bank requests for the funding, the Fund will supply funds in the form of purchasing the bank’s preferred stocks, hybrid capital, or redeemable preferred stocks of banks.To help raise banks' Tier 1 capital, the Fund will buy mainly preferred stocks and hybrid capital. These stocks and capital will be redeemable when the bank exercises the call option after a designated length of period (five years or more). In order to help reduce banks' funding cost the Fund plans to utilize BOK loansTo minimize the external intervention in the subject banks’ management, the Fund will prescribe following requirements:①Seek self-rescue measures, especially to reduce expenses;②Increaselending to low-income borrowers and mid- to long term loans;③ Abstain from asset expansion schemes and increase
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Dec 22, 2008
- Amendments to Accounting Standards for FX Translation
- The Financial Services Commission (FSC), The Financial Supervisory Service (FSS), and The Korean Accounting Standards Board (KASB) have agreed to implement a set of measures namely, "Amendments to Accounting Standards for FX Translation." The FSC and the FSS had been engaged in close consultations with market participants such as companies with large foreign debts, financial institutions, and accounting experts regarding the issue of accounting standard of FX translation and transactions. The proposal was affirmed at the Economic and Financial Meeting on December 19, 2008.I. Background● Due to the recent surge of won-foreign exchange rate Korean companies are experiencing huge FX translation losses in their annual report.* When FX rate increases by KRW 100, companies' FX translation loss and debt each increases by KRW 5trn. (based on US$ 50.16bn of domestic companies' foreign borrowings from foreign exchange banks)▶As a result of the drastic rise of the FX rate, Korean companies are exposed to adverse business environments such as downgrading on their credit ratings, early debts redemption, an increase in financial costs, and difficulty with obtaining new credit lines.▶If this situation sustains, financial institutions will have to suffer deteriorating BIS capital adequacy ratio and reduction in their corporate loan facilities. Consequently, this will further prolong the process of economic recovery from the current crisis.●Therefore, it had been deemed necessary to take timely actions to minimize financial burdens on companies and financial institutions, especially those related to accounting standards.II. Way Forward1. Listed Companies and Large Unlisted CompaniesA. Permission of Revaluation on Property Plant and Equipment (PPE)●(As-Is) Revaluation of PPE has not been permitted since 2001, and asset value increases for the past decade have not been reflected on the books.* Fair Valuation permitted in IFRS (IAS 16)●(Improvement) Revaluation of real esta
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Dec 22, 2008
- Improvements in Derivatives Market Supervision
- BackgroundThe financial crisis spread globally through the asset securitization and credit derivatives that preceded the collapse of the sub-prime market. Local companies and investors also suffered heavy losses from either KIKO contracts or large falls in FX/stock prices. This has created a pressing need for an appropriate supervisory system for the derivatives market, especially in regards to strengthening the competitiveness and developing the soundness of Korea’s capital markets ahead of the expected introduction of the Capital Market and Financial Investment Business Act in February 2009.To this effect, the FSC/FSS established last July a joint private-public Task Force Team with the Korea Institute of Finance (KIF), the Korea Securities Research Institute (KSRI), the Korea Securities Dealers Association (KSDA), the Korea Futures Association (KFA), the Korea Federation of Banks (KFB), Korea Exchange (KRX), the Korea Securities Depository (KSD), and industry specialists.The TF Team produced a detailed plan called, “Improvements in Derivatives Market Supervision” after a series of discussions, including a study by industry experts, Task Force consultations, and IMF technical assistance.Summary of ChangesThe proposed plan outlines 4 main areas with 51 sub-categories.1. Reorganizing the derivatives market monitoring system• Strengthening information analysis and its utilization by itemizing information, setting up a database, and establishing a consultative body of experts2. Strengthening the investor protection by taking into consideration the characteristics of each respective product and investor• Providing greater product descriptions, introducing graded canvassing rules, strengthening protection of small investors and businesses, etc.3. Preventing derivatives-based transactions from overexposing financial institutions and posing systemic risk• Strengthening financial company’s internal controls and establishing systems to reduce derivatives tradi
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Dec 17, 2008
- European Commission Grants Equivalence to Korea
- 1. Contents of European Commission’s DecisionAs of December 12, 2008, the European Commission (EC) granted equivalence to Korea’s Generally Accepted Accounting Principles (GAAP).** Under European Union (EU) regulations, third countries’ issuers must prepare their consolidated accounts in accordance with International Financial Reporting Standards (IFRS) or GAAPs that are granted equivalence with the IFRS by the year 2009. Final decision to grant equivalence of IFRS is made by the EC and requires conformity in the contents of third countries’ accounting standard as well as credibility of each country’s accounting supervisory system.With this decision, Korean companies listed in European markets are able to use their financial statements using Korean GAAP until the year 2011.This decision is due, in part, to Korea’s efforts to adopt the IFRS and the fact that its accounting supervisory system received a positive review from the Committee of European Securities Regulators (CESR).However, the EC will regularly monitor Korea’s IFRS adoption process and its progress.Meanwhile, the EC has determined that the GAAPs of the U.S., Japan, China, Canada, and India are equivalent to IFRS. Like Korea, the GAAPs of Chinai, Canada, and Indiaii will be monitored regularly on its equivalence status.2. Discussion Progress among Regulatory BodiesKorean regulatory bodies have made efforts to receive positive reviews on Korea’s GAAP’s equivalence status.The regulatory bodies have hosted discussion meetings with the CESR and requested that Korea’s GAAP be included in the review of granting equivalence to third countries’ accounting standard.With visits to the CESR, meetings with the evaluation committee, sending evaluation documents, and actively promoting Korea’s commitment to adopt IFRS and efforts to improve its accounting and supervision system, the regulatory bodies received a positive outcome.3. Expected EffectsWith this decision, Korean companies listed in th
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Dec 09, 2008
- Direction and Process of Corporate Restructuring
- BackgroundKorea’s financial markets have not been immune from the uncertainties prevailing in the global financial markets as the credit freeze and financial institutions loses continue to grow amid concerns that it would further deteriorate corporate liquidity and slowdown the real economy.A process that clearly sets out how the restructuring will be carried out and who it will affect would address the anxiety and uncertainty plaguing the markets through prompt and orderly restructuring.Restructuring DirectionCorporate restructuring will have a focus on saving companies, even though resolution would follow quickly for those companies deemed to be non-viable. Although industry-wide restructuring is not being ruled out, unlike the financial crisis in the late 1990s the current restructuring will center on individual companies and large business groups. Restructuring will commence alongside financial support for companies that are currently on the Fast Track or workout programs as a result of the temporary squeeze in liquidity.Restructuring ProcessCorporate restructuring will proceed under the discretion of the creditor financial institutions, but the Corporate Credit Support Task Force, the Council of Creditor Financial Institutions, and the Creditor Financial Institutions Steering Committee will also bear a part of the responsibilities along with the government.To lend support and add efficiency to the restructuring process, the FSC/FSS launched the Corporate Credit Support Task Force on November 28, 2008 and is now headed by the governor of the FSS.The Council of Creditor Financial Institutions is comprised of each respective company’s major creditor bank and others, which will discuss and decide restructuring process upon convening Council meetings. The creditor banks will categorize companies into four groups with A being normal, B temporary liquidity shortage, C distressed, and D in receivership. The major creditor banks will work through the Council of Cred
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Nov 25, 2008
- The Global Financial Crisis & Korea’s Policy Response
- IGE/IMF International Conference Luncheon RemarksThe Global Financial Crisis Korea’s Policy ResponseDr. Jun Kwang-Woo Chairman Financial Services CommissionGREETINGSDistinguished guests, and ladies and gentlemen,I am delighted to be with you this afternoon, and I thank IGE Chairman Kim Pyung-Joo and President Lee Young-Tak and Dr. Mahmood Pradhan from the IMF for organizing today’s conference and inviting me to speak. I also thank speakers and distinguished participants who are with us today.In light of the deepening distress in the global financial markets, today’s conference, entitled “Lessons from the Recent Global Financial Crisis: Its Implications for the World and Korea,” is both timely and of great interest to every one of us.So I am glad to join you and share with you my perspectives on how the financial crisis emerged, what lessons we can draw from it, and where we go from here. GLOBAL FINANCIAL CRISIS KOREAN ECONOMYThe global financial crisis started with collapsing asset prices followed by a debilitating credit crunch. Expansive monetary policy by the U.S. Federal Reserve since 2001 and a surge in foreign capital inflow since 2004 kept interest rates at record low levels.Financial deregulation also swept across the major developed countries beginning in the 1980s. During this time, capital market liberalization also picked up the pace among the emerging countries.This process ultimately led to sharp increases in financial institutions’ leveraged activities and asset inflation. In particular, as financial institutions increasingly employed aggressive asset securitization and complex derivatives to sustain high profit growth, a host of new risks began to weigh on the financial system. For their part, regulators did not fully grasp the situation and preempt the risks. And the global nature of the financial system meant that the systemic risks would be felt and shared by markets around the world.Domestic financial marketsWe are now getting clear i
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Nov 24, 2008
- Statement by the FSC on the BOK's Liquidity Support
- The FSC highly commends the Bank of Korea’s recent preemptive decision to provide liquidity support to companies investing in the Bond Market Stabilization Fund (BMSF). It is intended not only to stabilize the financial market in general, but also to help implement the BMSF in particular, through close cooperation with the government. It is thought that the decision will ease financial companies’ efforts in raising funds for their investments along with any worries of establishing liquidity in the bond market. Thus, the government plans to speedup the process of building the BMSF. Through careful discussions between financial companies, a decision will be made on the participating institutions, the total investment amount, and the specific amount shared by each institution. The BMSF will be set in motion very shortly. The participating institutions will mainly be composed of banks, insurance companies, and securities companies.As already announced, the primary purpose of the Fund is to provide liquidity to quality corporations that are experiencing temporary liquidity shortages due to the current market credit crunch. P-CBOs that have been credit-enhanced by KODIT and KIBO, high-rate ABCPs based on Project Financing, credit financing bonds, and corporate bonds will be the first to be considered on the purchasing list. The issuers will be requested to make their own restructuring efforts when necessary. The details of fund composite, the managing institution, and the priority of trade will be shortly decided after discussions between the participating parties. The Financial Services Commission (FSC) and the Financial Supervisory Services (FSS) will oversee operations from the beginning to ensure investor protection and market stability. Mr. Jun Kwang-Woo, the FSC chairman, has requested that the vice-chairman start meeting with related financial associations and the FSS as of Nov. 25th to discuss detailed plans to propel the project as soon as possible.*Please re
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Nov 11, 2008
- Meeting with Heads of Major Banks
- On Wednesday November 5, 2008, a closed breakfast meeting was held between Kwang-Woo Jun (FSC Chairman), Jong-Chang Kim (FSS Governor) and the presidents of the 7 major Korean banks* . The main topic of discussion was centered on the financial support to be provided to SMEs. * Kookmin, Woori, Shinhan, Hana, Nonghyup, KDB, and IBK.Kwang-Woo Jun, Chairman of the FSC● The government has enforced a number of drastic measures* in order to overcome the global financial crisis including support to financial institutions and the real economy.●However, complaints are continuously being voiced by SMEs on the financial difficulties which are still present in their operations, despite efforts already being made by the government. - It is now time for banks to take positive steps to respond to government efforts.●From this moment on, presidents of banks are requested to take particular interest in the operations of lending funds to SMEs. This effort should be felt by the SMEs.- In particular, it is hoped that the Fast Track Program launched for SMEs are effectively implemented as soon as possible.●Banks need to provide support to sound SMEs temporary experiencing financial difficulty and to play an active role in starting a chain reaction of improving the financial soundness of banks and of accelerating the recovery of the real economy.- The most effective method of stabilizing the financial system is to minimize the number of SMEs going bankrupt and to prevent the real economy from falling into a recession.●Although there are concerns over whether the financial soundness of banks maybe compromised if support to SMEs and vulnerable sectors are expanded,- The government has taken preemptive measures in expanding the capacities of state-owned banks and credit guaranteeing institutions such as the Korea Credit Guarantee Fund and the KIBO Technology Fund to strengthen the risk absorbing capability of the banking sector; - The government intends to continually encourage the
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Nov 03, 2008
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Oct 30, 2008
- A Decision to Reinforce the Elimination of Malignant Rumors in the Stock Market
- In early September, the Financial Services Commission partnered with other stock market related government agencies to form a Joint Countermeasure Task Force to tackle the recent widespread circulation of malignant rumors regarding the Korean stock market. An unspecified number of rumors have caused an increase in the Korea Exchange to request public inquiries of corporations to verify the nature of the rumors. Moreover, the rumors have been thought not only to disturb the fair trading environment but also to have been the sources for the plunge in certain stocks. There is also suspicion that reports containing negative outlooks from foreign analysts are connected to the initiation of short-selling and market correction. Many of these rumors have been found to be without grounds, thus causing greater concern and sparking the urgency for the development of countermeasures to seek and prevent the sources of the rumors.Implementation Plan1. Joint Countermeasure Task Force● The Expansion of the Countermeasure TeamThe Countermeasure Team which was previously run solely by the FinancialSupervisory Service (FSS) has been expanded and renamed as the JointCountermeasure Task Force to include the cooperation of the Korea SecuritiesDealers Association (KSDA), the Korea Listed Companies Association (KLCA),and the KOSDAQ Listed Companies Association (KOSDAQCA) as of September,2008.According to interviews with market analysts and personnel from the exchange, thetask force is proving to be effective in the prevention of malignant rumors.●The Operation of Call CentersSeveral call centers have been put in place to receive reports on malignant rumors,with rewards provided for genuine leads on rumors that are potentially harmful andwithout grounds.The FSS is responsible for investigating the sources of rumors and monitoringpress releases, analyst reports, various investment websites, and the actualexchange floor.Corporations have been requested to actively make voluntary public re