Newly Appointed Executives' Stock Options Also Included in Mandatory Holding Shares

Encouraging Different Period Settings by Mandatory Holding Target Groups

[Asia Economy Reporter Lee Jung-yoon] The mandatory stock retention for executives of newly listed companies will be strengthened.

On the 22nd, the Financial Services Commission, the Financial Supervisory Service, and the Korea Exchange announced that stocks acquired through the exercise of stock options by executives of newly listed companies will also be subject to mandatory retention, restricting their disposal for six months.

Furthermore, listed companies will be encouraged to set different retention periods for each category of mandatory stock retention subjects, such as major shareholders, executives, and business operation directors of companies applying for listing, and to disclose this information through securities registration statements and other documents.

The mandatory retention system supports protecting investors from sudden stock price fluctuations caused by large-scale sales in the early stages of listing and helps establish a fair stock price early on. It is applied at the time of new listing, typically restricting the disposal of stocks owned by major shareholders or their special related parties who have special interests or managerial responsibilities for six months.

However, while the mandatory retention system has been applied to stocks acquired by exercising stock options before listing, it has not been applied to stocks acquired by exercising stock options after listing. As a result, there have been cases where executives of some listed companies sold all the stocks acquired immediately after listing by exercising stock options.

In addition, most newly listed companies have uniformly set the retention period for all mandatory retention subjects to the minimum period of six months, which will also be improved. This is because concentrated selling after six months from listing can increase price volatility. The mandatory retention subjects currently include directors, auditors, and executive officers under the Commercial Act, and business operation directors will be added.

Through this improvement, companies will be encouraged to voluntarily set differentiated mandatory retention periods considering the characteristics of each subject. In addition to the basic six-month period, the period can be extended up to two years to support differentiated design. Also, stocks subject to mandatory retention exceeding six months through voluntary retention commitments will be registered and managed by the Korea Securities Depository. Moreover, details such as mandatory retention subjects, stocks held by each subject, and retention periods will be transparently disclosed to the market through securities registration statements at the time of listing.

The improvement plan will be institutionalized through revisions to the listing regulations and disclosure forms of the Korea Exchange’s KOSPI and KOSDAQ markets, and will be implemented immediately after approval by the Securities and Futures Commission under the Financial Services Commission and the Financial Services Commission within this month. Additionally, revisions to the securities registration statement forms will be concurrently promoted to enable disclosure of the revamped mandatory retention system.

This content was produced with the assistance of AI translation services.