The Financial Services Commission announced that relevant rule changes regarding the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) and subordinate regulations have been approved by the government on December 23. The regulatory improvement intended to strengthen the disclosure duty of listed companies with regard to their acquisition and disposal of treasury stocks to help promote the use of treasury stocks for the purpose of enhancing shareholder value is scheduled to take effect from December 30. In this regard, listed companies will be subject to the revised disclosure rules starting with their 2025 annual business report filing.

Key Revision Details

First, when the proportion of treasury stock holding is one percent or more of the total volume of stocks issued, listed companies will be required to disclose their treasury stock holding status and future plan twice a year.

Previously, the minimum threshold was set at five percent of the total volume of stocks issued, and companies were subject to the treasury stock disclosure duty once a year.

Thus, the minimum threshold for treasury stock disclosure will be tightened to one percent of the total volume of stocks issued, so that more listed companies will become subject to the treasury stock disclosure duty for their annual and semi-annual business report filing. In addition, an upgrade will be made to the relevant disclosure form to make sure that companies provide more detailed information about their plans for treasury shares for the upcoming six-month period.

Second, listed companies will be required to provide a comparison between their previously announced plans and actual implementation status in their treasury stock disclosure reports.

Under the current rules, companies disclose their treasury stock acquisition, disposal, and cancellation plans in their annual business reports but often deviate from their original plans to the surprise of investors, raising problems for market predictability.

Thus, the revised rules will require listed companies to provide a comparison between their previously announced plans and their actual implementation status for the six-month period thereafter in their annual and semi-annual business reports. If the level of deviation is deemed to be considerable (30 percent or more from the original plan), specific reasons need to be also provided.

Third, there will be a regulatory ground established to impose aggravated penalties against recurrent rule-breakers.

Under the current regulatory system, it has been pointed out that various forms of violations in treasury stock disclosure practices are not sufficiently and effectively sanctioned.

Thus, the revised rules will allow authorities to make use of diverse sanctions mechanisms, such as recommendation for removing company executives, restriction from issuing securities, penalty surcharge, and criminal punishment, and to bring aggravated penalties against recurrent rule-breakers to boost the effectiveness of sanctions.

Fourth, there will be strengthened disclosure requirement (annual and semi-annual business report filing) with regard to the occurrence of serious industrial accidents.

Under the current rules, companies are required to disclose information about whether they have been subject to any penalties and/or administrative actions associated with serious industrial accidents. However, the rules do not require them to disclose information about the occurrence, damage situation, response actions, and future expectation regarding serious industrial accidents.

Thus, the revised rules will require listed companies to disclose in their annual and semi-annual business report filing detailed information about the occurrence, damage situation, response actions, and future expectation regarding serious industrial accidents.

Fifth, there will be more detailed information made available to shareholders about statements of board of directors meetings on critical management issues, such as mergers & acquisitions (M&As), asset transfers, share swaps, spin-offs, etc. through an upgrade to relevant disclosure form.

Expectation

With the revised capital market rules in place, it is expected that critical information about corporate management practices will be made available to ordinary shareholders in a more timely manner, which will help to narrow the gap in information asymmetry and promote more shareholder value-driven management practices. Additionally, the revised rules will help to strengthen the management of financial risks associated with serious industrial accidents.

Moreover, the revised rules will help to push up the number of listed companies making use of treasury stocks for boosting shareholder returns as the volume of treasury stocks that have been cancelled in the January-November period (KRW20.7 trillion) in 2025 already surpassed the total treasury stock cancellation volume of the previous year (KRW13.9 trillion).

The FSC plans to make continuous efforts to improve rules on treasury stocks to help enhance shareholder value and promote autonomous corporate management practices.

* Please refer to the attached PDF for details.