The government will revise related laws to encourage listed companies to voluntarily use treasury shares to enhance shareholder value. However, it will introduce aggravated penalties for violations of disclosure related to treasury shares, strengthening punishment for deficient disclosures.
The Financial Services Commission said on the 25th that it has given advance notice of legislation and revised the Enforcement Decree of the Financial Investment Services and Capital Markets Act, the Regulations on Securities Issuance and Disclosure, and the Regulations on Investigative Affairs, and will tighten disclosure standards related to treasury shares from 5% to 1% of the number of shares issued.
Through the government's corporate value enhancement plan announced last year and the revision of the Enforcement Decree of the Financial Investment Services and Capital Markets Act, listed companies holding treasury shares equal to 5% or more of issued shares have been required to disclose their holdings and disposal plans. As a result, the scale of treasury share purchases and cancellations has risen sharply. The total cancellation amount last year was 13.9 trillion won, and this year it reached 18.8 trillion won through Aug., surpassing last year's results.
However, some listed companies have omitted entries on their treasury share holdings or filled out acquisition and disposal plans inadequately, causing problems. Financial authorities will further improve the disclosure system to strengthen the rights and interests of ordinary shareholders.
With this system improvement, listed companies that hold treasury shares exceeding 1% of issued shares must disclose their status and disposal plans twice a year. The disclosure threshold will be tightened from the current 5% to 1%, and disclosures will be required on a regular basis. The disclosure form will also be revised so that the status and disposal plans are prepared in more detail.
Disclosure will also be strengthened regarding whether disposal of treasury shares has been carried out. Currently, companies disclose their treasury share disposal plans in business reports, but there have been cases where the plans are not actually implemented. Under this system improvement, listed companies must compare the most recently disclosed treasury share disposal plan with the actual implementation status over the following six months and reflect it in the business report.
Penalties will be strengthened for violations related to disclosure of treasury shares. If a disclosure violation occurs, sanctions such as recommendations to dismiss executives, restrictions on securities issuance, and a penalty surcharge will be imposed, and repeated violations will result in aggravated penalties.
The Financial Services Commission said it expects this to serve as an opportunity to shift the perception of treasury shares from a tool for specific shareholders to a shareholder return tool for the benefit of all shareholders, and added, "We will ensure that corporations striving to enhance shareholder value receive corresponding evaluations from the market and investors."
The revised regulations will be noticed until Nov. 5 and, after due procedures, will take effect in the fourth quarter.