A report came out to call for making an improvement of reporting obligation standards for massive stockholding in order to stave off attacks from overseas speculative capital. The report is “Massive Stockholding Report Systems in Foreign Countries” released by the Korea Economic Research Institute (KERI) on March 10.
The Massive Stockholding Report System makes it compulsory for those who hold five percent or more of stocks with voting rights of listed companies to report the numbers of their shares and the goals of their shareholdings to the Financial Supervisory Commission and the Korea Stock Exchange within five days after their purchases.
The institute pointed out that the current Massive Stockholding Report System in Korea needs improving as it is vulnerable to hostile M&A attempts by activist funds among others as shown in last year’s Elliot Management case. In particular, they insisted that the government lower the shareholding ratio which is a reporting standard.
In Korea, the ratio has been 5 percent or more since the introduction of the system. But many countries already have been pruning such ratios. For example, the UK set the ratio at five percent in 1986 the system was introduced. But the ratio was lowered to three percent in 1990.
“The UK lowered the ratio to three percent by revising the Corporation Act to make it more difficult for foreign speculative capital to take over its financial institutions in 1990,” said Kim Byung-tae, a professor at Yeongsan University.
European nations such as Germany and France set their ratios at three percent or more. The US is lowering the ratio, too. The Korea Economic Research Institute also said that the reporting period needs to be shortened. At the moment, the reporting period is within five days in Korea. But the UK and Australia require large shareholders to report their massive shareholdings within two days while three days are the required reporting period in Hong Kong.
“In the US, the reporting period is up to ten days. But a petition is now reviewed to reduce the period to five days as expedients have been driving Institutional abuses and market disruptions,” professor Kim said.
“Many of large shareholders are investment experts or foreign specialized funds. So they are aware of the reporting system,” professor Kim continued. “Thus, they do not need five days as a reporting period. Korea needs to reduce the reporting period to two or three days as in foreign countries.”
The development of the internet is making the past long reporting period obsolete, he explained.