Financial authorities said on the 30th that they revised the Enforcement Decree of the Financial Investment Services and Capital Markets Act and subordinate regulations to require all listed companies to disclose plans and implementation details for disposing of treasury shares approved at shareholders' meetings. This is a measure following the third amendment to the Commercial Act, promulgated and enforced on the 6th.
Under the third amendment to the Commercial Act, in principle, treasury shares must be retired within one year after acquisition, and treasury shares acquired before the law took effect must be retired within one year and six months. If treasury shares are exceptionally needed for uses such as employee compensation or management purposes, a plan for holding and disposing of treasury shares must be prepared and approved by the shareholders' meeting.
Accordingly, the Financial Services Commission expanded the disclosure scope of the status of treasury share holdings and disposal plans to all listed companies so the intent of the amended Commercial Act can be properly realized. If the timing for disposing of treasury shares is not specifically set at the time of shareholders' approval, it had been difficult for investors and ordinary shareholders to grasp how the treasury shares were actually disposed of; this has been improved. Under the amended Commercial Act, plans for holding and disposing of treasury shares include the holding and disposal purposes, holding status, holding period, and timing of disposal.
Financial authorities plan to revise the Enforcement Decree of the Financial Investment Services and Capital Markets Act and disclosure forms so that all listed companies disclose twice a year to investors and ordinary shareholders concrete information such as the "actual implementation status under the treasury share disposal plan." An official at the Financial Services Commission (FSC) said, "We made the Commercial Act's plan for holding and disposing of treasury shares and the Financial Investment Services and Capital Markets Act's disclosure system for holding status and disposal plans work in a complementary manner."
The mere fact that plans to acquire, dispose of, or retire treasury shares differ from the actual processing status does not constitute a violation of disclosure obligations. However, if it is found that the plan was falsely stated contrary to the facts at the time, it may be subject not only to administrative measures under the Financial Investment Services and Capital Markets Act, such as cautions and warnings, penalty surcharge, restrictions on securities issuance, and recommendations to dismiss executives, but also to criminal punishment.
Financial authorities also banned the issuance of exchangeable bonds (EB) targeting treasury shares and strengthened oversight of trustees.
Under the amended Commercial Act, during the term of a trust contract to acquire treasury shares, acts of disposing of treasury shares are prohibited, and upon termination or cancellation of the trust contract, they must be returned to the trustor without delay. Issuance of exchangeable bonds targeting treasury shares, equal pro rata disposal to shareholders, and disposals to an unspecified large number of persons other than disposals to third parties are also not allowed.
Financial authorities added regulatory measures in the Enforcement Decree and subordinate rules to ensure that trustees do not dispose of treasury shares during the trust period and deleted in a batch the provisions related to issuing exchangeable bonds targeting treasury shares. While the market sale method of disposing of treasury shares to an unspecified large number of persons is restricted, the off-hours block trade (block deal) method, in which the counterparty is specified, will be maintained as is.
The proposed amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act and the Regulation on Issuance and Disclosure of securities will be open for public notice of legislation and rule change from the 31st through May 11. The amendments are scheduled to take effect after procedures including review by the Ministry of Government Legislation and approval by the Vice Minister and the Cabinet meeting.
An official at the Financial Services Commission (FSC) said, "Through this amendment, we will encourage listed companies' use of treasury shares to proceed with market trust, so treasury shares can function not as a short-term stock price management tool but as a means to enhance corporate value over the mid to long term."