Financial Services Commission "Must Disclose Holding Purpose"... Improvement of the '5% Rule'

[Asia Economy Reporter Ji Yeon-jin] The financial authorities will improve the system to require more detailed disclosure of the purpose of holding shares in relation to the so-called '5% rule,' which mandates disclosure of changes when holding 5% or more of a listed company's shares.

The Financial Services Commission announced on the 18th that it will revise the 'Corporate Disclosure Forms' and 'Practical Guidelines' related to large shareholding reports (5% rule).

Regarding the corporate disclosure forms, if the purpose of holding a large number of shares is to influence management control, it will be considered that a reporting obligation has arisen, and if a specific plan is established later, a 'corrective disclosure' must be made. Even if a reporting obligation arises, if a plan has not yet been established, there is no need to specify a detailed plan for the holding purpose.

When reporting a purpose to influence management control, the previously allowed method of simply listing examples under the law will be discouraged, and reports must include specific plans. If the plan changes after reporting, another 'corrective disclosure' must be made to specifically describe and report the changes.

If the purpose to influence management control disappears, a 'change report' must also be submitted. The practical guidelines will be revised to provide various examples for reporting parties to refer to.

Currently, many 5% rule reports disclose holding purposes in a broad manner, such as simply listing them, which has been criticized for not providing sufficient information to investors.

The Financial Services Commission stated, "We expect that this revision will enhance the transparency and fairness of management control competition," and added, "It is anticipated that investors, who decide their investment intentions considering the possibility of changes in company control, will be provided with more thorough information necessary for rational investment decisions."

The Financial Services Commission plans to revise and implement the corporate disclosure forms in the third quarter of this year and revise the practical guidelines by December.

Additionally, if the performance of this revision is poor, the Commission plans to consider, in the mid to long term, legally mandating the inclusion of specific plans when reporting large shareholding purposes through amendments to the Enforcement Decree of the Capital Markets Act.