A plenary session of the National Assembly passed an amendment to the Capital Markets and Financial Investment Business Act, which will require large-scale stock transactions by insiders of listed companies to be disclosed in advance beginning from the second half of 2024.
The Financial Services Commission made the announcement on Dec. 28, explaining that it reflected investor dissatisfaction and social concerns by learning a lesson from cases where stock prices plummeted due to insiders’ large-scale stock sales. In particular, if insiders (executives and major shareholders) take advantage of non-public information that only they have access to for their self-interest, they can cause damage to general investors from drops in their companies’ stock prices.
Going forward, if insiders of listed companies intend to trade stocks issued by the listed companies beyond certain sizes, they must disclose the purposes, prices, quantity and trading periods before the scheduled trading dates. In order to prevent fragmented trading, prior disclosure is determined by summing trading volume and transaction amounts over past six months, and the submission of duplicate plans with overlapping trading periods will be not allowed.
Violations of the new rule such as the non-disclosure of trading plans, false disclosures, and the non-implementation of trading plans, may result in fines of up to 2 billion won.
However, government authorities have also stipulated complementary measures to ensure that the system does not give excessive burdens. First, if necessary, insiders of listed companies will be allowed to trade stocks issued by the listed companies within the range of 30 percent of a pre-disclosed trading amount even if their trade does not comply with their trading plans.
Moreover, transactions due to inheritance, stock dividends, and other unavoidable reasons stipulated by the Capital Markets Act’s enforcement decree are excluded from prior disclosures and a withdrawal from a trading plan is permitted in situations where it is difficult for trading plan reporters to anticipate such transactions in advance such as deaths, bankruptcies or excessive losses incurred due to increased market volatility.
“This amendment to the law will enhance the transparency and predictability of large-scale insider trading, contributing to the prevention of unfair trading and the protection of investors in general,” financial authorities said. “Insiders will be required to disclose large-scale stock sales in advance, which will be able to get rid of any unnecessary misunderstandings that they used non-public information covertly later on.”
The amendment to the Capital Markets Act, which passed the plenary session of the National Assembly, will come into effect six months after the Korean government promulgates the law.