What Must Be Cleared First to Bring Securities Losses in a Single Action: Certification Requirements for a Securities-Related Class Action, the Scope of the Class, and Reconstitution of the Representative Parties

Question

When a large number of investors suffer similar losses from a listed company's disclosure violations or unfair trading, the securities-related class action is the mechanism for bringing those losses together in a single action. Filing a complaint does not lead directly to examination of the merits. The court must first render a decision certifying the action.

The question this paper asks is what is examined at that certification stage. Must the representative party show that liability for damages is established, or need it only make a prima facie showing of the requirements that establish the need for a collective procedure? And if the court may look into the causative act to the extent necessary to determine the certification requirements, where does that boundary lie?

The second question is how the class is to be defined. Where the class includes investors who bought and sold shares during the damage period, it is difficult to identify which shares are subject to compensation, and the size of the class and the amount of damages vary with the method of calculation. The third question is whether the application as a whole fails when, during the certification proceedings, some representative parties lose their qualification or fall outside the scope of the class.

This paper does not forecast whether certification will be granted in any particular case. By reference to the law in force at the time of the conduct, it sets out the materials to check and the points at which readings diverge, and it leaves the judgment to the reader.

Material to check

First, examine the application for certification and its attachments. Article 12(1) of the Securities-Related Class Action Act lists four certification requirements. (a) The class must consist of 50 or more members, and the securities held by the members at the time of the act giving rise to the claim must total at least one ten-thousandth of the total securities issued by the defendant company. (b) The claim must be a claim for damages under one of the subparagraphs of Article 3(1) of the same Act, and important issues of law or fact must be common to all members. (c) The class action must be an appropriate and efficient means of realising the rights or protecting the interests of the entire class. (d) There must be no defect in the particulars stated in the application or in its attachments. The first point to check is what material the application relies on to make a prima facie showing of each of these four requirements.

Next, confirm whether the cause of action falls within the scope of application of Article 3 of the same Act. Article 3(1) limits that scope to claims for damages under Article 125, 162, 170, 175, 177 or 179 of the Financial Investment Services and Capital Markets Act. Article 3(2) provides that the claim must arise from the sale and purchase, or another transaction, of securities issued by a stock-listed corporation. The structure of the common issues also differs depending on which provision the claim relies on.

Two kinds of material define the scope of the class. The first is the purport of the application, which identifies the issuer, the type of securities, the time of issuance, the type of transaction that caused the damage, and the damage period. The second is the account records showing the members' holdings and trading. How purchases and sales during the damage period are recorded in the securities depository and settlement data bears directly on the choice of the method for calculating the class.

As to the representative parties, examine the records of the public notice and appointment under Article 10 of the same Act. Article 10(4) provides that the court shall, by ruling, within 50 days from the date of the public notice, appoint the person most suitable to represent the interests of the entire class. That person is chosen from among the person who filed the action and the members who submitted applications, and must meet the requirements of Article 11. Article 11(1) provides that a representative party must be a member who is able to represent the interests of the entire class fairly and adequately.

Where the claim is based on unfair trading, materials showing the structure of the financial investment product are central. If redemption or settlement of the product is determined by the price of the underlying asset at a particular point in time, the product description, the valuation date and conditions, and the trading records before and after the valuation date must be read together.

Finally, check the contents of the certification decision. Article 15(2) of the same Act requires the decision to state, among other matters, the representative parties, the plaintiff's counsel, the defendant, the scope of the class, the operative part, the reasons, a summary of the purport and cause of the claim, and the period and method for filing an opt-out notice. Article 15(3) allows the court, where it deems it appropriate, to grant certification after adjusting the scope of the class. Article 15(4) permits an immediate appeal against the certification decision.

Possible readings

On the scope of examination at the certification stage, one reading puts the separation of proceedings first. The certification proceedings are the stage for deciding whether a collective procedure is necessary. On this view, whether liability is established is left to the merits, and only the prima facie showing of the certification requirements is examined. On this reading, the defendant's arguments that it bears no liability are generally not subject to determination at the certification stage.

Another reading stresses that examination of the causative act enters through the common-issues requirement. Determining whether important issues are common inevitably requires some inquiry into what the act forming the cause of action was. The two readings differ not in principle but in the depth of examination, and the real issue is where that depth stops in each case.

On the method of calculating the class, one reading might directly contest whether the first-in, first-out method or the last-in, first-out method is correct. Another reading, however, focuses less on the relative merits of the methods than on who holds the choice. On that reading, the choice made by the representative party is respected unless the chosen method is particularly unreasonable or the class cannot be determined by that method.

As to the wording "defendant company", two readings are opposed. The narrow reading holds that only the issuer may be a defendant. The broad reading holds that persons liable for damages other than the issuer may also be defendants, and that the one-ten-thousandth threshold is calculated by reference to the issuer of the securities held by the members. The difference surfaces in claims against persons other than the issuer, such as securities firms.

Where a defect arises in a representative party, readings divide. The strict reading holds that the application as a whole ceases to meet the requirements. The other reading holds that the certification examination should continue if representative parties can be constituted from the remaining persons after those with defects are excluded. The definitional provision, which allows a single representative party, and the provision on adjusting the scope of the class support the latter reading.

As to claims based on unfair trading, the divergence lies in whether the "unfair means, scheme or artifice" in Article 178(1), subparagraph 1 is read broadly or narrowly. The product's structure may make the price at a particular point in time determine the outcome. In that case, whether conduct that affected the price at that point can be regarded as an unfair practice is also bound up with the determination of the scope of application at the certification stage.

What the decisions held

Supreme Court Order 2015Ma4027 dated 4 November 2016 separated the certification proceedings from the merits proceedings. It held that "what the representative party must make a prima facie showing of in the certification proceedings is the certification requirements, and matters to be dealt with in the merits proceedings, such as whether liability for damages is established, are in principle not subject to examination in the certification proceedings." It also stated, however, that the causative act and related matters may be examined to the extent necessary to determine whether the common-issues requirement is met. On the scope of the class, it held that "unless there are special circumstances, such as the method chosen by the representative party being particularly unreasonable or the scope of the class being impossible to determine by that method, the scope of the class may be determined according to the method chosen by the representative party." It found that determining the scope of the class by the first-in, first-out method was not unlawful where some members may have sold part of their deposited shares. It further held that the defendant company in Article 12(1), subparagraph 1 "is properly interpreted, notwithstanding the wording, as 'the company that issued the securities held by the members'." It held that the common-issues requirement "is satisfied if material facts are common to the causes of action of all members" and is not defeated merely by the existence of individual facts or individual defences. In the operative part, the re-appeal was dismissed.

Supreme Court Order 2013Ma1052 dated 9 April 2015 held that whether conduct constitutes an unfair practice must be determined by considering comprehensively the structure and manner of trading of the product, the characteristics of the market, the rights and obligations of investors, and related matters. For a product whose exercise of rights or satisfaction of conditions is determined by the price of the underlying asset or the like at a particular point in time, it held that "if a person engaged in conduct affecting the exercise of rights or the satisfaction of conditions stipulated in the financial investment product by using means, artifices or the like recognised as unfair under socially accepted norms," this constitutes a violation of Article 178(1), subparagraph 1, and investors who suffered loss as a result may claim compensation under Article 179(1). In the operative part, the order below was reversed and the case was remanded. Supreme Court Order 2017Ma5883 dated 5 July 2018 addressed cases in which a person appointed as a representative party is found not to meet the requirements, or some representative parties drop out because the scope of the class has been changed. It held that even in such cases the court must examine whether representative parties can be constituted after excluding those who do not meet the requirements, and whether the requirements of Articles 3 and 12 are met, and that "if the application for certification meets those requirements, the court must certify the securities-related class action." In the operative part, the part concerning one securities firm among the defendants was reversed and remanded, and the remainder of the re-appeal was dismissed.

Practical checklist

Can it be confirmed immediately from the application and its attachments which subparagraph of Article 3(1) of the Securities-Related Class Action Act the cause of action relies on, and whether the securities concerned were issued by a stock-listed corporation?

What material was used to calculate the numerical requirements of 50 or more members and holdings of at least one ten-thousandth of the securities? Is the company used as the basis for that calculation the issuer of the securities held by the members, rather than the defendant?

Was the scope of the class determined by the first-in, first-out method or the last-in, first-out method, and are the reasons for choosing that method on record? Is there material to answer an objection that the method is particularly unreasonable or makes it impossible to determine the class?

Has it been set out whether each representative party is still included in the scope of the class as changed, and, if anyone has lost the qualification, whether representative parties can be constituted from the remaining applicants or from the members who submitted applications?

Glossary

Entire class: where many persons suffer losses in the course of the sale and purchase or other transaction of securities, all victims who share a common interest in the recovery of those losses. A member is each individual victim making up the entire class.

Representative party: one or more members who, with the court's certification, conduct the securities-related class action proceedings on behalf of the entire class.

Opt-out notice: a notice by which a member informs the court of the intention not to be bound by the res judicata effect of the judgment or other disposition in the class action.

First-in, first-out method: a method of determining the remaining shares by deeming the shares acquired first to have been disposed of first. The last-in, first-out method, conversely, treats the shares acquired last as having been disposed of first.

Sources and limitations

The provisions are based on the current texts retrieved from the National Law Information Center on 16 October 2026. The text retrieved for the Securities-Related Class Action Act is the version in force from 29 August 2013. The text retrieved for the Financial Investment Services and Capital Markets Act is the version in force from 2 October 2026.

For Orders 2015Ma4027 and 2017Ma5883, only the holdings, summaries of judgment and operative parts published in the National Law Information Center were checked. For Order 2013Ma1052, the original text could not be opened, so only the content cited in Order 2015Ma4027 was confirmed. The full reasons, the lower courts' findings of fact, and the specific structure and trading records of the products were not checked, so this paper does not describe the facts.

The original text indicates that the extinctive prescription provision in Article 179(2) of the Financial Investment Services and Capital Markets Act was amended in 2018. The applicable period may differ depending on whether the conduct occurred before or after that amendment, so the law in force at the time of the conduct must be checked separately.

Points left open

The summaries of judgment alone do not settle how far examination of the causative act, to the extent necessary to determine the common issues, actually extends. Which parts of a defendant's arguments at the certification stage that it bears no liability bear on the determination of commonality remains a question in each case.

Leaving the choice of the method for calculating the class to the representative party is a principle of the certification stage. The summaries of these decisions do not directly answer whether the same method must also be used in calculating damages on the merits, or whether it may be contested separately.

The summaries indicate that representative parties may be reconstituted only from the person who filed the action and the members who submitted applications. Whether a new representative party may be sought outside that group remains open.

Several factors for determining unfair trading have been set out. The weight of each factor, and the degree to which each must be shown prima facie at the certification stage, need to be reconsidered together with the principle of separating the certification proceedings from the merits.

When to reconsider

This paper will be revised if the provisions of the Securities-Related Class Action Act on certification requirements, the appointment of representative parties, or the adjustment of the class are amended, or if the Supreme Court issues a decision redefining the scope of examination at the certification stage.

It will also be revisited if the wording of Articles 178 and 179 of the Financial Investment Services and Capital Markets Act changes, or if Article 3 of the Securities-Related Class Action Act, which defines the scope of application of class actions, is amended.

Statutes referred to

• 증권관련 집단소송법 제2조, 제3조, 제10조, 제11조, 제12조, 제15조
• 자본시장과 금융투자업에 관한 법률 제178조, 제179조

Decisions referred to

• 대법원 2016. 11. 4. 자 2015마4027 결정 · Decision ledger
• 대법원 2015. 4. 9. 자 2013마1052 결정 · Decision ledger
• 대법원 2018. 7. 5. 자 2017마5883 결정 · Decision ledger

Verification status

The cited provisions (Articles 2, 3, 10, 11, 12 and 15 of the Securities-Related Class Action Act and Articles 178 and 179 of the Financial Investment Services and Capital Markets Act) were checked on 16 October 2026 against the current texts in the National Law Information Center. The cited decisions (Supreme Court Order 2015Ma4027 dated 4 November 2016, Supreme Court Order 2013Ma1052 dated 9 April 2015, and Supreme Court Order 2017Ma5883 dated 5 July 2018) were checked against the holdings, summaries of judgment and operative parts of the original texts in the National Law Information Center. The full texts of the reasons and the lower-court records were not checked.