News and developments
Amendment of FSCMA and Its Subordinate Regulations to Introduce “Prior Disclosure Regime” for Insider Trading
requiring executives and major shareholders of listed companies (collectively, the “Insiders”)[1] to disclose in advance large-scale share transfers. The Amended FSCMA will take effect on July 24, 2024.
In connection with the planned implementation of the new disclosure requirement under the Amended FSCMA, on February 29, 2024, the Financial Services Commission (the “FSC”) issued a notice of the proposed amendment to the Enforcement Decree of the FSCMA, as well as an announcement of the planned amendments to (i) the “Regulations on Disgorgement of Short-Swing Profits and Unfair Trading Investigation and Report,” and (ii) the “Capital Markets Investigation Operations Manual” (collectively, the “Proposed Amendments”). The Proposed Amendments set forth (i) the Insiders and the type and size of transactions exempted from the prior disclosure obligations, (ii) the deadline for prior disclosure, (iii) the permissible scope of changes to the in-scope transactions that may take place after the prior disclosure, and (iv) grounds for withdrawal of the prior disclosure.
In consideration of frequent sharp drops in stock prices caused by the Insiders’ large-scale sales of listed stocks becoming a social issue, the new prior disclosure regime was introduced to require a mandatory prior disclosure of the sale or purchase of listed stocks by the Insiders, which currently is subject to only a post-disclosure requirement.
The details of the Amended FSCMA and the Proposed Amendments are as follows:
In the case of small-scale transactions exempted from the prior disclosure requirement, both the trading volume and the amount must be below the threshold level (i.e., 1% of the total number of issued securities and KRW 5 billion, respectively). Therefore, a change in the transaction price from the expected price indicated in the disclosed transaction plan occurring after the prior disclosure has been made may result in a final transaction volume exceeding the threshold amount, thereby resulting in a breach of the prior disclosure obligations. As such, it would be prudent to take into account any change in the transaction price occurring after the prior disclosure has been made in order to avoid violating the disclosure obligations.
In addition, if an Insider who is not exempt from prior disclosure obligations (although the majority of financial investors would fall under the exemption) participates in confidential transactions, such as block deals, the information relating to such transactions may be required to be disclosed in advance. We advise companies to review the disclosure obligations relating to confidential transactions.
Footnotes [1] In relation to the aforementioned “Insiders,” (i) The term “executives” refers to directors, auditors and employees with supervisory authorities, and (ii) the term “major shareholders” refers to those who hold at least 10% of the voting shares or exercise de facto influence over major management matters, such as the appointment and dismissal of officers. [2] The prescribed securities include equity securities (including preferred stocks), convertible bonds, bonds with warrants and relevant depositary receipts. [3] The prescribed securities include equity securities (including preferred stocks), convertible bonds, bonds with warrants and relevant depositary receipts.
- Prior Disclosure Obligations
- Exemptions from Prior Disclosure Obligations
Exemptions from the Prior Disclosure Obligations | Specific Criteria |
Parties Subject to Exemption | Domestic financial investors with a relatively high level of internal control standards who are not likely to misuse undisclosed information (e.g., pension funds, collective investment vehicles such as private equity funds (including special purpose companies), banks, insurance companies, specialized credit finance companies, financial investment businesses, venture capital firms, and the Korea SMEs and Startups Agency). Foreign investors equivalent to the domestic financial investors described above. |
Transaction Size Subject to Exemption | Small-scale transactions where the aggregate volume and amount of prescribed securities[3] traded over the past six months is (i) less than 1% of the total number of issued and outstanding shares of a listed company, and (ii) less than KRW 5 billion, respectively. |
Type of Transactions Subject to Exemptions | Inheritance, stock dividend, purchase and sale required under laws and regulations, tender offer, acquisition and disposition upon a split-up, merger of a company, etc. |
- Procedures and Methods for Disclosures
- Withdrawal or Cancellation of Transaction Plans
- Sanctions on Violations
Footnotes [1] In relation to the aforementioned “Insiders,” (i) The term “executives” refers to directors, auditors and employees with supervisory authorities, and (ii) the term “major shareholders” refers to those who hold at least 10% of the voting shares or exercise de facto influence over major management matters, such as the appointment and dismissal of officers. [2] The prescribed securities include equity securities (including preferred stocks), convertible bonds, bonds with warrants and relevant depositary receipts. [3] The prescribed securities include equity securities (including preferred stocks), convertible bonds, bonds with warrants and relevant depositary receipts.