Executives of Listed Companies Must Disclose Large Stock Transactions at Least 30 Days in Advance

Amendment to the Enforcement Decree of the Capital Markets Act Approved at Cabinet Meeting
Effective from Trading on or after the 23rd of Next Month
Maximum Penalty up to 2 Billion Won for Non-Compliance

In the future, insiders such as executives and major shareholders of listed companies will be required to disclose their trading plans 30 days in advance when conducting large-scale transactions of company shares.

On the 9th, the Financial Services Commission announced that the amendment to the Enforcement Decree of the Capital Markets and Financial Investment Business Act, which includes these provisions, was approved at the Cabinet meeting. This amendment to the enforcement decree will take effect from the 24th. Two subordinate regulations that were also announced for public comment will be implemented on the same day.

The amendment to the enforcement decree and the subordinate regulations specify the scale and types of transactions subject to mandatory or exempted prior disclosure. Insiders are required to disclose in advance if their transactions amount to "1% or more of the total issued shares" or "50 billion KRW or more" based on the cumulative total over the past six months.

If both conditions of "less than 1% of the total issued shares" and "less than 50 billion KRW" are met, the reporting obligation is exempted. Additionally, transactions that do not raise concerns about the use of undisclosed material information or transactions due to unavoidable reasons caused by external factors (such as inheritance, stock dividends, mergers and acquisitions by stock transfer) are excluded from the prior disclosure obligation.

Financial investors, including pension funds, are exempted from the prior disclosure obligation. This is because they are judged to have relatively high levels of internal control and a low possibility of using undisclosed material information.

If subject to the prior disclosure obligation, the trading plan must be reported at least 30 days before the transaction start date. Accordingly, from the enforcement date of the law on the 24th, the obligation to report trading plans will apply to transactions settled after August 23, which is 30 days later.

Those subject to the prior disclosure obligation must include the expected transaction amount, transaction price and quantity, and transaction period in the trading plan report. The allowable range for trading amounts differing from the plan is set at a maximum of 30%, as delegated by law, and the transaction must be completed within 30 days from the scheduled transaction start date.

The trading plan can be withdrawn only in unavoidable circumstances.

Unavoidable circumstances are defined as the death or bankruptcy of the reporter, expected excessive losses due to increased market volatility, or inability to execute the trade due to the fault of the counterparty.

The law allows for fines of up to 2 billion KRW for violations such as failure to disclose trading plans, false disclosure, or failure to execute the trading plan to enhance the effectiveness of the system.

The Financial Services Commission stated, "Transparency and predictability related to large-scale stock transactions by insiders will be improved, contributing to the prevention of unfair trading and protection of investors," and added, "Timely provision of insiders’ shareholding change information to general investors can also help minimize market shocks."