KOSDAQ 'Supply Contract Inflation' Serious... FSC Strengthens Disclosure Obligations

Supply Contract-Related
Insufficient Disclosures Account for 18.5% in KOSDAQ Market
Contract Amount Specified... Disclosure Reservation Thresholds Also Raised

Seoul Yeouido Financial Supervisory Service building. Photo by Younghan Heo younghan@

Domestic listed company A saw its stock price surge after announcing a supply contract related to the COVID-19 vaccine. The stock price rose by as much as 62.3% over 10 trading days before and after the announcement but then fell by nearly 40%. Ultimately, the company terminated the contract due to fulfilling less than 50% of the contract amount and was designated as a non-compliant disclosure corporation.

According to the Financial Supervisory Service on the 6th, as of the first half of this year, the proportion of non-compliant disclosures related to supply contracts in the KOSDAQ market reached 18.5%, the highest level since 2021. This is the highest level in the past five years except for 2021 (21.2%).

Currently, the Korea Exchange designates companies as non-compliant disclosure corporations if they cancel contracts after announcing contract conclusions or fulfill less than 50% of the initial contract amount, depending on the violation details.

Previously, listed companies were criticized for causing domestic investor damage due to severe information asymmetry, such as not disclosing contract counterparts or not providing progress information, citing business confidentiality.

The Financial Supervisory Service plans to strengthen management from the disclosure submission stage at the exchange to prevent false or exaggerated disclosures and to require detailed progress descriptions in regular reports. Companies will be required to specify important contract condition information such as the presence of contract deposits or advance payments and payment terms.

The threshold for companies’ requests to withhold disclosure (non-disclosure) will also be raised. Disclosure will be managed so that only one of either the contract amount or the contract counterpart can be withheld. However, non-disclosure will be allowed only in unavoidable cases, such as when there is a significant risk of hindering the company’s ongoing business activities. Additionally, companies must include cautionary statements for investors when withholding disclosure.

The Financial Supervisory Service will also revise the format of regular reports as of the 15th to specify interim reporting of disclosure progress. Companies will be required to report the status of disclosures in semi-annual and business reports and provide detailed reasons if progress is not made. The exchange will also revise the format for ad hoc disclosures related to single sales and supply contract conclusions.

Cooperation between the Financial Supervisory Service and the Korea Exchange will be strengthened. The Financial Supervisory Service will request market surveillance from the exchange, and the exchange will promptly notify the Financial Supervisory Service of investigation results. Internal organizational exchanges between the two institutions will also be expanded.

The Financial Supervisory Service stated, "Information related to single sales and supply contracts will be sufficiently provided to investors from the contract point and throughout subsequent progress to aid investment decisions," adding, "It is expected to prevent attempts at unfair trading activities such as stock price manipulation through false or exaggerated disclosures."