On December 28, 2023, proposed amendments to the Financial Investment Services and Capital Markets Act (“FSCMA”) requiring insiders of listed companies to disclose large-scale share transfers in advance was passed through the plenary session at the National Assembly. This is a follow-up to our previous newsletter (Link) dated September 12, 2022, which covered the Financial Services Commission (“FSC”)’s announcement of a plan to introduce mandatory prior disclosure of insider transactions (Link). The proposed amendments have since been enacted into law after undergoing review and submission to the National Assembly (the “Amendments”).

The Amendments are set to take effect six months after the Government’s promulgation process (anticipated to be in July 2024). The key details are as follows:
 

• If an insider of a listed company, meaning an executive (including directors, auditors, and de facto executives (e.g., a person who orders business execution)) or a majority shareholder (holding at least 10% of shares or having the power to exercise de facto influence, excluding those prescribed in the Enforcement Decree of the FSCMA) intends to buy or sell shares (including equity securities, convertible bonds, bonds with warrants and related depository receipts) issued by the listed company in the threshold amount specified by the Enforcement Decree, he/she must disclose the purpose of the transfer, the expected transfer price, the volume and expected transfer period (which shall be between 30 to 90 days as prescribed by the Enforcement Decree) prior to the expected trading date (Article 173-3 (1) of the proposed amendment).

• Whether the relevant transaction is subject to mandatory prior disclosure will be determined by aggregating the transaction volume and transaction amount for the past six months to prevent split trading, etc. A transaction plan that outlines overlapped transaction periods will be rejected at submission (Article 173-3 (2) of the proposed amendment).

• Failure to disclose transaction plans, providing false disclosures, failure to perform disposal plans and any other violations of disclosure obligations may result in an administrative fine of up to KRW 2 billion (2/10,000 of the market capitalization but not exceeding KRW 2 billion) (Article 429 (5) of the proposed amendment).

• To prevent the excessive burden associated with mandatory disclosures, a flexibility of up to 30% of the transaction amount set out in the transaction plan (the specific ratio to be prescribed by the Enforcement Decree) may be allowed for disposal, if deemed necessary to reflect the market situation at the time of the transaction (Article 173-3 (3) of the proposed amendment).

• Transactions due to unavoidable reasons prescribed by the Enforcement Decree, such as inheritance and share dividends, will not be subject to mandatory prior disclosures. In unforeseeable circumstances, such as substantial anticipated losses resulting from the death or bankruptcy of an executive or major shareholder, or increased market volatility, the reporting individual may withdraw its transaction plan (Article 173-3 (4) of the proposed amendment).

• The specific transaction volume, persons exempt from disclosure obligations, and disclosure deadlines subject to prior disclosure obligations will be established later through the Enforcement Decree or other related regulations. 
   

The Amendments are expected to enhance transparency and predictability of large-scale insider transactions, prevent unfair trading practices and safeguard general investors. For insiders, the requirement to disclosure substantial share sales in advance will mitigate unnecessary potential misunderstandings, such as through the use of classified information for disposal. On the other hand, a major shareholder must disclose share transactions of at least a prescribed size at least 30 days in advance. Non-compliance with this requirement will result in sanctions, making it inevitable to expose the shareholder to stock price fluctuation risks up to the trading date. We, therefore, recommend that the major shareholder carefully considers various factors when devising a transaction structure and strategies.

[Korean Version]