From the 30th, disclosures on listed companies' holdings and disposals of treasury shares will be further tightened. In addition, the issuance of exchangeable bonds (EB) using treasury shares, which had been misused as a tool for controlling shareholders to defend management rights, will be completely banned.
The Financial Services Commission said on the 23rd that the Cabinet approved a revision to the Enforcement Decree of the Financial Investment Services and Capital Markets Act reflecting these measures. Subordinate rules, including the Regulation on Issuance and Disclosure of Securities and the Corporate Disclosure Form Preparation Standards, will also be updated to align with the amended decree. The revised decree takes effect on the 30th.
Under the amendment, the disclosure obligation—previously imposed only on listed companies that held treasury shares of 1% or more of total issued shares—will be expanded to all listed companies that hold treasury shares. Going forward, all listed companies must disclose detailed plans for holding and disposing of treasury shares as approved at the shareholders meeting.
In business reports, companies must state in detail the deadline for canceling treasury shares and the content of approvals for holding and disposal plans, and they must record the initial purpose for acquiring treasury shares in the "short-term plan related to acquisition, disposal, and cancellation of treasury shares." This is so shareholders can directly judge the appropriateness of the plan by comparing the company's originally stated acquisition purpose with the actual disposal purpose.
Rules on the use of treasury shares that had drawn criticism for enabling loopholes will also be revised. First, the issuance of EBs backed by treasury shares will be fully prohibited. Treasury share-based EBs have often been issued to friendly third parties even when funding needs were not significant, effectively serving as a tool to defend management control by controlling shareholders.
Provisions related to market sales (on-exchange disposals) of treasury shares to an unspecified number of buyers have also been deleted. Treasury shares may only be disposed of equally to existing shareholders or to third parties other than existing shareholders.
A new rule also bars disposing of treasury shares during the term of a trust contract established to acquire them. If the trust contract ends or is terminated, the treasury shares must be returned without delay to the company as the consignor. The plan is to fundamentally block acts that circumvent the obligation to cancel treasury shares.
The disposal period for treasury shares acquired by exercising a call option has been changed from "disposal within five years" to "the period specified in the holding and disposal plan approved by the shareholders meeting (up to five years)."
The Financial Services Commission said, "This reform is meaningful in that, under the overarching principle of mandating the cancellation of treasury shares, treasury shares will be guided to serve their original purpose of returning value to shareholders, and the process will be disclosed transparently to shareholders and investors."