Financial Services Commission to Introduce Pre-Disclosure System for Internal Transactions of Listed Companies..."Increased Transparency and Predictability"

[Asia Economy Reporter Lee Jung-yoon] The Financial Services Commission announced on the 12th that it plans to introduce a system requiring insiders of listed companies to disclose their share transactions not only after the fact but also in advance.

According to the FSC, once the insider trading pre-disclosure system is introduced, insiders of listed companies (executives and major shareholders) must disclose specific details such as the purpose of the trade, price, quantity, and the planned trading period at least 30 days before the scheduled trading date when intending to trade stocks issued by the listed company. The disclosure requirement applies when trading 1% or more of the total shares issued by the company or when the transaction amount is 5 billion KRW or more.

However, pre-disclosure obligations will be exempted for trades unlikely to involve the use of undisclosed material information or cause significant market impact. Changes in shareholding due to external factors or trades where pre-disclosure is difficult due to their nature are excluded from disclosure requirements. In principle, changes or cancellations of disclosed plans are prohibited but may be allowed in limited cases where unavoidable reasons stipulated by law exist.

The disclosure obligor must submit the trading plan to the Financial Supervisory Service (FSS), which will verify the post-trade disclosures and monitor compliance with the plan. The FSC plans to ensure effectiveness by imposing sanctions such as criminal penalties, fines, and administrative measures depending on the severity in cases of non-disclosure, false disclosure, or failure to execute the trading plan. The introduction of the pre-disclosure system is expected to enhance transparency and predictability of insider stock transactions and reduce market volatility.

There have been ongoing investor complaints and social concerns due to cases where stock prices plummeted following large stock sales by insiders such as executives of listed companies. Some have raised suspicions that insiders, who have easy access to undisclosed corporate information, gain private benefits through such information while ordinary investors bear the losses from stock price declines.

Earlier in March, the FSC strengthened investor protection measures by improving the system to restrict the sale of stocks acquired through stock option exercises for six months after listing. However, this measure alone could not regulate insiders’ disposal of shares held after the lock-up period post-listing, nor provide sufficient information to ordinary investors about insider stock transactions that significantly impact stock prices.

In the United States, a pre-trading plan submission system for insider stock transactions is in operation, and recently, plans to strengthen it have been announced as part of expanding policy efforts to enhance transparency in insider trading. Accordingly, the government included the introduction of the insider trading pre-disclosure system as one of the national tasks to restore fairness and trust in the capital market, and has prepared detailed plans through research projects and meetings. Currently, there is no system that preemptively regulates and monitors major insiders’ trades.

An FSC official stated, "As this is a national task of great market interest, we will strive to promptly legislate by submitting amendments to the Capital Markets Act to the National Assembly within the year," adding, "We are also conducting in-depth reviews of other national tasks aimed at investor protection and eradication of unfair trading, and plan to announce them sequentially within the year."

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