The Financial Supervisory Service said that simple disclosure violations and short-swing profits are repeatedly occurring due to a lack of understanding of regulations and low awareness among those with reporting obligations. It added on the 30th that it would provide guidance on key violation cases and points to note so equity disclosures can be carried out more thoroughly.
The Financial Investment Services and Capital Markets Act requires controlling shareholders, executives, and others of listed companies to report the holding and ownership status of stocks and certain securities, their trading plans, and any changes. The Financial Supervisory Service (FSS) continuously checks this through regular reviews and imposes sanctions such as administrative measures or, if necessary, referrals to investigative agencies when violations are detected.
In particular, the penalty surcharge cap for violations of the report on large holdings of stocks and the like was raised tenfold in Jul. last year from 1/100,000 of market capitalization to 1/10,000. Extra caution is needed to prevent disclosure violations.
First, when an unlisted company is newly listed, existing shareholders must check the type, deadline, and criteria for reporting even if there is no change in the number of shares they hold. Securities convertible into stocks, such as convertible bonds (CB) and bonds with warrants (BW), are also included in the scope of equity disclosure reporting.
Major shareholders must examine whether changes in the company's capital structure due to paid-in or free capital increases constitute grounds for the occurrence of, or exemption from, reporting obligations. Even if a change qualifies for an exemption from reporting changes in large holdings, a reporting obligation arises if a subsequent change other than the exempted reason causes the holding ratio to change by 1 percentage point or more compared with the previous report.
In addition, if an officer, employee, or major shareholder buys and then sells, or sells and then buys, the corporation's specific securities within six months and a profit arises, it is deemed that short-swing profits occurred regardless of whether undisclosed information was actually used or there was intent to profit.
Through its reviews, the Financial Supervisory Service (FSS) notifies the company when short-swing profits are confirmed and takes measures to have the relevant details disclosed on the website and in business reports. In principle, the responsibility to seek reimbursement lies with the company; however, if the company does not follow appropriate procedures, shareholders may file for reimbursement on behalf of the company.
For officers and employees, if the person held officer or employee status at either the time of the sale or the purchase, the obligation to return profits may arise even after resignation. Major shareholders are subject to returning short-swing profits only if they hold major shareholder status at all times of both the sale and the purchase.
The Financial Supervisory Service (FSS) plans to strengthen preemptive prevention efforts so that those with reporting obligations can build their own capacity to comply with the law regarding repeatedly occurring violations for transparent equity disclosures.
An FSS official said, "We will thoroughly review and deal strictly with equity disclosure violations and, when short-swing profits are confirmed, notify the company and have it disclosed to investors, thereby fostering a transparent capital market."