Korea Securities Investment Advisor cheat sheet

Equity securities: common stock confers voting rights and residual claim; preferred stock carries fixed dividend priority but typically no voting rights.

Bond price-yield relationship is inverse; duration measures price sensitivity, and modified duration approximates the percentage price change for a 1% yield change.

Yield to maturity equates the present value of coupons and principal to the market price; current yield equals annual coupon divided by price and ignores capital gain or loss.

Money market instruments (CP, CDs, RPs, treasury bills) mature in one year or less and are quoted on a discount or add-on yield basis.

Derivatives: futures carry symmetric obligations and daily mark-to-market; options grant asymmetric rights, with the buyer's maximum loss limited to the premium.

Collective investment vehicles in Korea include collective investment trusts, investment companies, and REITs; each is governed by distinct formation and disclosure rules.

Market structure: the Korea Exchange operates the KOSPI, KOSDAQ, and KONEX markets; KONEX targets early-stage SMEs with lighter listing requirements.

Primary market issuance occurs via public offering or third-party allotment; secondary market trading settles on a T+2 basis under KRX rules.

Put-call parity for European options: C - P = S - PV(K), where S is the underlying price and PV(K) is the present value of the strike.

CAPM: expected return = risk-free rate + beta x (market return - risk-free rate); beta measures systematic risk only.

Sharpe ratio = (portfolio return - risk-free rate) / standard deviation; Treynor ratio uses beta in the denominator instead.

Total risk decomposes into systematic and unsystematic risk; diversification eliminates unsystematic risk but not systematic risk.

Efficient frontier: set of portfolios offering the highest expected return for each level of risk; the tangency portfolio maximizes the Sharpe ratio.

Fundamental analysis uses top-down or bottom-up approaches; relative valuation compares multiples such as P/E, P/B, and EV/EBITDA across peers.

Technical analysis indicators include moving averages and RSI; RSI above 70 conventionally signals overbought conditions, below 30 oversold.

Duration gap and convexity: convexity adjusts the duration estimate of bond price change and is positive for plain vanilla bonds.

Behavioral finance biases include overconfidence, anchoring, herding, and loss aversion; these explain deviations from rational expectations.

Performance attribution separates returns into allocation, selection, and interaction effects relative to a benchmark.

Suitability and appropriateness: the firm must assess the investor's investment purpose, financial status, and experience before recommending or soliciting.

Explanation duty: before a contract, the firm must explain the product's structure, risks, fees, and early termination conditions in writing or electronically.

Unsolicited (cold-call) sales are restricted; certain high-risk products cannot be sold unsolicited, and recording or written consent requirements apply.

Know-your-customer rules require re-verification when the investor's information changes materially or at statutory intervals.

Investment solicitation must not guarantee principal or returns; misleading statements about past performance or future prospects are prohibited.

Conflict of interest: firms must identify, manage, and disclose conflicts, and refrain from transactions that unfairly benefit the firm over the client.

Korean investor protection law includes the Financial Consumer Protection Act, which imposes the six sales principles including suitability and explanation duties.

Complaint and dispute channels include the firm's internal complaint process, the Financial Supervisory Service, and the Financial Dispute Resolution Committee.

Investment policy statement defines objectives, risk tolerance, constraints (liquidity, time horizon, tax, legal, unique), and rebalancing rules.

Strategic asset allocation sets long-term target weights; tactical asset allocation makes short-term deviations based on market views.

Rebalancing can be calendar-based or threshold-based; threshold rules trade only when weights drift beyond a band.

Risk tolerance combines ability to take risk (financial capacity) and willingness (psychological attitude); the lower of the two governs the allocation.

Dollar-cost averaging invests fixed amounts at regular intervals; it reduces timing risk but does not guarantee a profit.

Advisory fee structures include asset-based fees, flat fees, and performance-based fees; performance fees require a disclosed high-water mark.

Liquidity constraints include emergency reserves and near-term cash needs; illiquid assets should match long-horizon funds.

Portfolio monitoring includes periodic performance review, drift checks against the policy statement, and review of changing client circumstances.

Korea taxes capital gains on listed shares only above a statutory threshold or for major shareholders; domestic individuals otherwise enjoy exemption on listed stock sales.

Dividends are subject to withholding tax; the comprehensive financial income tax aggregates interest, dividends, and certain other financial income above a threshold.

Financial investment income tax rules apply to qualifying financial investment income such as interest and dividends, with separate rates and basic deductions.

Overseas financial income must be reported and taxed; foreign tax paid may be credited against Korean tax subject to limits.

Securities transaction tax is levied on share transfers on the Korea Exchange; the rate varies by market and is borne by the seller.

VAT generally does not apply to financial services, but advisory or management fees may be taxable depending on the service classification.

Accounting: financial assets are classified at fair value through profit or loss, fair value through OCI, or amortized cost, based on business model and cash flow characteristics.

Effective interest method amortizes premiums, discounts, and transaction costs over the life of a debt instrument.

Tax-loss harvesting realizes losses to offset gains within the same tax year; wash-sale rules may limit immediate repurchase in some regimes.

Fiduciary duty requires loyalty and care: act in the client's best interest, place client interests ahead of the firm's, and avoid conflicts.

Independence and objectivity: investment recommendations must not be influenced by gifts, entertainment, or compensation tied to product sales.

Confidentiality: client information may be disclosed only with consent or when legally required; need-to-know access applies internally.

Fair dealing: all clients receive fair and equitable treatment; selective disclosure of material nonpublic information is prohibited.

Insider trading prohibition covers trading on material nonpublic information and tipping others who trade on it.

Recordkeeping: maintain records of recommendations, client communications, and transactions for the statutory retention period.

Compliance program elements include written policies, a designated compliance officer, training, monitoring, and periodic testing.

Whistleblowing and escalation: report suspected violations internally first, escalating to regulators where required by law.