"Employees of Listed Companies Must Return Profits Even After Resignation"…FSS Provides Guidance on Cases of Short-Term Trading Gains

Average 42.3 Cases Per Year Over the Past 3 Years
Total Short-Term Trading Profit Amounts to 19.5 Billion KRW
Purchases Made During Employment and Sold After Resignation Also Subject to Regulation

The Financial Supervisory Service (FSS) has disclosed major cases and issued warnings as instances of listed company executives or major shareholders trading stocks using undisclosed information continue to occur.

According to the FSS on the 8th, the average annual number of short-term trading profit cases from 2021 to 2023 was 42.3, totaling approximately 19.54 billion KRW.

The short-term trading profit return system was established to proactively prevent unfair profits gained through trading using undisclosed information. If executives or major shareholders of a listed company trade specific securities within six months and generate profits, the company can request the return of those profits regardless of whether undisclosed information was used.

A representative case involves buying convertible bonds (CB) and selling common stocks. Even if the types of securities bought and sold differ, profits generated from trades within six months are subject to return.

If an executive purchases stocks while employed and sells them after resignation, the obligation to return profits still applies. However, for major shareholders, they must hold the status of a major shareholder at both the time of purchase and sale to be subject to return.

Not only profits from selling securities within six months of purchase but also profits from buying securities within six months after selling are subject to return.

Even if the overall trading period results in a loss, when calculating short-term trading profits, transactions that incurred losses are excluded, and only those with profits are considered.

Profits from selling stocks acquired through exercising stock options (an exception to the short-term trading profit return rule) are not subject to return.

Companies notified by the FSS of short-term trading profits must disclose this information on their websites and in regular reports. In principle, the responsibility for requesting the return of short-term trading profits lies with the respective company.