Insider Transactions of Listed Companies Subject to the Prior Disclosure Requirement from July 24

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Insider Transactions of Listed Companies Subject to the Prior Disclosure Requirement from July 24 Jul 09, 2024

The Financial Services Commission announced that regulatory changes, which require insider transactions of listed companies to be disclosed 30 days prior to their planned transaction dates, have been approved by the government at a cabinet meeting held on July 9. The revision proposal for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and its subordinate regulations will go into effect from July 24.

The rule changes being introduced specify (a) the entities that will be exempted from the prior disclosure duty, (b) the volume and type of transactions exempted from the disclosure duty, (c) details regarding the procedure and method of disclosure, (d) specific reasons or cases where insider transactions plan can be withdrawn, and (e) a clearer method for calculating penalty surcharges that can be imposed on rule-breakers.

First, the rule changes being introduced exempt pension funds and other financial investors that are expected to have higher levels of internal control standards and are unlikely to misuse material nonpublic information—such as collective investment vehicles, banks, insurance companies, specialized credit finance companies, financial investment businesses, venture capital firms, and the Korea SMEs and Startups Agency—from the duty to disclose their stock transaction plans in advance for insider transactions. Moreover, an exemption from the prior disclosure duty will also be granted to foreign investors that are deemed to have an equivalent status to the above mentioned domestic financial investors to ensure more equal treatment of both domestic and foreign investors.

Second, the rule changes being introduced grant an exemption if the volume of transactions in particular securities types over the past six months is less than one percent of the total number of shares issued by the company within that particular year and if the total amount of transactions is less than KRW5 billion. Moreover, an exemption from the prior disclosure duty will also be granted for transactions resulting from a statutory requirement, tender offers, or acquisitions or dispositions following corporate spin-offs or mergers.

Third, the rule changes being introduced require that companies’ insider transaction plans specify the expected transaction price and volume as well as the trading period, and have transactions completed within 30 days from the expected transaction opening date. The revision proposal will also allow an up to 30 percent of room for change regarding the actual amount of transactions from the previously planned transaction amount to allow insider traders to more flexibly deal with market situations. Plans for insider transactions should be disclosed at least 30 days prior to the expected date of transaction. As this disclosure duty on insider transactions will take effect from July 24, trades taking place after August 23 will become subject to this rule.

Fourth, the rule changes being introduced allow insider transaction plans to be withdrawn in the case that an unforeseeable event takes place, such as death, bankruptcy, delisting, suspension of stock transaction. In addition, excess market volatility, which presents the possibility of loss at a significant level, can also qualify as a reason for withdrawal.

Fifth, the rule changes being introduced establish a specific standard for calculating different levels of penalty surcharges imposable on those failing to comply with the prior disclosure duty for insider transactions, while taking into account various factors, such as market capitalization, transaction amount, and the severity of violation. Under the FSCMA, 2/10,000 of market capitalization can be imposed as a penalty surcharge, with the maximum level of penalty surcharge set at KRW2 billion.

With the implementation of the prior disclosure duty on insider transactions from July 24, it is expected that there will be more transparency and predictability in large-scale stock transactions of company insiders, which will help to prevent unfair trading activities and strengthen protection for investors. Moreover, the FSC expects that this will also help to minimize market shocks.

The financial authorities plan to make available relevant support to ensure a seamless implementation of the prior disclosure requirement. In this regard, the Financial Supervisory Service will hold online information sessions (from July 15 to 19) to provide key information about the newly introduced disclosure duty.

• Please refer to the attached PDF for details.

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