Financial Services Commission Vice Chairman: "Improvement of Treasury Stocks Should Consider Balance Between Shareholder Value and Management Rights"

Kim So-young, Vice Chairman of the Financial Services Commission, is briefing on the launch of the 'Online One-Stop Debt Consolidation Loan Infrastructure' at the Government Seoul Office in Jongno-gu, Seoul, on the 30th. Photo by Yoon Dong-joo doso7@

The financial authorities have decided to revise the current treasury stock system, which has been criticized for being exploited to expand the control of major shareholders.

On the 5th, Kim So-young, Vice Chairman of the Financial Services Commission, stated at the "Seminar on Improving the Treasury Stock System of Listed Companies," jointly hosted by the Korea Exchange and the Korea Institute of Finance at the Korea Exchange in Yeouido, "We will review various policy measures to ensure that the treasury stock system is not abused as a means for major shareholders to illegitimately expand their control, but is used for its original purpose of enhancing shareholder value."

Vice Chairman Kim added, "However, since there is an opinion that in Korea, treasury stocks have effectively been used as a means to defend corporate management rights, we will formulate policies that balance shareholder protection and the actual needs of companies."

He pointed out several issues related to the current treasury stock system, including the expansion of major shareholders' control during the process of spin-offs and the exchange of treasury stocks to secure friendly shares.

Vice Chairman Kim noted, "Although most shareholder rights, such as voting rights, are restricted for treasury stocks, in the case of spin-offs, the allocation of new shares to treasury stocks is customarily allowed, which strengthens control without additional contributions from major shareholders, a phenomenon referred to as the so-called 'treasury stock magic.'"

He continued, "When a company exchanges its treasury stocks with a friendly company, voting rights effectively revive, diluting the shares of ordinary shareholders and potentially hindering healthy management competition."

He explained, "In Germany, acquiring treasury stocks above a certain scale is generally prohibited, and in countries such as the UK, Japan, and some states in the US, strict bans on new share allocations during spin-offs are implemented to protect ordinary investors."

Meanwhile, the Financial Services Commission plans to announce an improvement plan for the treasury stock system of listed companies in the second half of the year, based on the discussions at the seminar and after gathering opinions from various stakeholders.