"CB·BW, Reporting Required When Holding Over 5% of Shares at Acquisition"

Guidance on Major Violation Cases Related to Shareholding Disclosure

Financial Supervisory Service, Yeouido, Seoul. Photo by Younghan Heo younghan@

#. Mr. Kim acquired convertible bonds (CB) newly issued by listed company A in February last year but failed to fulfill the large shareholding (new) reporting obligation. This corresponded to 10% of the total issued shares. He only reported the large shareholding (new) fact when he exercised the conversion right and acquired shares on June 1.

#. Company C, a major shareholder of listed company B, triggered an ownership status (change) reporting obligation by selling 3% of its B shares on the market. However, it only fulfilled the large shareholding (change) reporting and did not report the ownership status (change).

On the 24th, the Financial Supervisory Service (FSS) provided guidance on major violation cases related to equity disclosure with such content. A significant number of violations concern the reporting of large shareholding status of stocks and the reporting of ownership status of specific securities by executives.

The large shareholding status reporting system requires persons holding 5% or more of voting-related securities of a listed company to timely report when acquiring or disposing of related securities.

First, the reporting obligation can arise even when acquiring convertible bonds or similar instruments, not just common stock. This includes convertible bonds, bonds with warrants (BW), and exchangeable bonds (EB) corresponding to 5% or more of the total issued shares. There is no large shareholding reporting obligation on the exercise date. However, if the person is an executive, reporting obligations exist on both the acquisition and exercise dates.

When adding or excluding special related parties such as relatives or co-holders, change reporting is required even if within 1%. This applies to new acquisitions or full disposals of shares by special related parties. However, unilateral addition or exclusion of special related parties triggers large shareholding (change) reporting obligations if the combined holding ratio changes by 1% or more compared to the previous report.

Also, under civil law, partnerships require aggregated reporting of individual holdings of all partners. When acquiring listed company shares through a civil law partnership, each partner is considered a special related party due to the joint holding relationship among them.

The ownership status reporting system for executives and others requires reporting of ownership and changes in company stocks and convertible bonds by executives and major shareholders. This is to prevent unfair gains as they have easier access to undisclosed information.

Major shareholders and executives must verify whether large shareholding and ownership reporting obligations occur simultaneously. Even if large shareholding reporting is fulfilled, ownership status reporting obligations are not exempted simultaneously, so both reports are necessary.

Also, care must be taken not to confuse exemption reasons for large shareholding and ownership reporting. Even if exempted from large shareholding (change) reporting, ownership status reporting obligations may still arise.

When newly appointed as an executive, reporting obligations arise even if the owned shares are small or of low value. Upon new appointment as an executive of a listed company, if owning even one share of the company, ownership status (new) reporting obligation arises. Unlike ownership status change reporting, which exempts reporting if transaction quantity is less than 1,000 shares and acquisition/disposal amount is less than 10 million KRW, there is no exemption for new reporting.

The relevant materials can be found in the 'Disclosure Work & System - Corporate Disclosure System General' menu on the FSS DART electronic disclosure system website.

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