The Financial Services Commission announced that the government approved a revision bill for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) at the cabinet meeting held on June 23. The revised rules will strengthen requirements on the disclosure of listed companies’ treasury stock holding status and update relevant rules on the disposal of treasury stocks in line with the revised Commercial Act.

Background

The FSC had previously proposed capital market rules change on March 31 intended to promote the use of treasury shares by listed companies as a means to boost shareholder value in line with the mandatory cancellation of treasury shares promulgated under the revised Commercial Act.

As a follow-up to the proposed rules change, the revision to the Enforcement Decree approved today expands the application of the duty to disclose the treasury share holding status and disposal plan to all listed companies that hold treasury shares. Previously, this disclosure requirement was in place only for the listed companies that hold one percent or more in treasury shares relative to the total volume of their stocks issued.

In line with the updated rules under the Enforcement Decree, subordinate regulations and relevant corporate disclosure reporting standards will also be updated in time for implementation.

Key Revision Details

First, the scope of listed companies subject to the duty to disclose the treasury share holding status and disposal plan will be expanded.

According to the revised Commercial Act, all companies should draw up their treasury share retention and disposal plans and have them approved at a shareholder meeting.

As such, the revised Enforcement Decree expands the scope of listed companies subject to the duty to disclose the treasury share holding status and disposal plan to all listed companies that hold treasury shares from those that hold one percent or more in treasury shares in relation to the total volume of stocks issued previously. The strengthening of the disclosure rule will encourage listed companies to more faithfully disclose their treasury share holding status and disposal plans after having them approved at a shareholder meeting.

Since this change will help to improve the quality and quantity of information being provided to shareholders and investors, the listed companies that use treasury shares to boost shareholder return are expected to receive more reasonable assessment from the market.

Second, in line with the revised Commercial Act prohibiting the issuance of exchangeable bonds (EBs) backed by treasury shares, relevant rules concerning EBs have all been redacted in the revised Enforcement Decree and subordinate regulations.

Issuing EBs for treasury shares was often used by companies to defend management control or maintain the power of controlling shareholder, which raised the problem of conflict of interests.

Under the revised Enforcement Decree and subordinate regulations, relevant clauses on the issuance of EBs for treasury shares have all been redacted to boost regulatory consistency between the Commercial Act and the FSCMA. Moreover, this will also help to close the regulatory loophole preventing companies from using EBs to bypass the treasury share cancellation duty.

Third, relevant rules on trust agreements for acquiring treasury shares have been updated. Under the revised Commercial Act, trust businesses are prohibited from disposing of treasury shares during the period of a trust agreement and are required to immediately return to beneficiaries upon termination and/or cancellation of a trust agreement.

This rule regarding the management of trust agreement has been incorporated into the updated Enforcement Decree, and relevant clauses on the disposal of treasury shares during the period of a trust agreement have been redacted.

Therefore, the revised rules make it clear that it will be essentially impossible for listed companies to bypass the treasury share cancellation duty through extending the period of trust agreement.

Fourth, the required period for disposing treasury shares that have been acquired through exercising stock options has been updated. Previously, listed companies were required to dispose treasury shares that have been acquired through exercising stock options within five years from the time of acquisition.

To improve regulatory consistency with the revised Commercial Act, the required period for disposing treasury shares that have been acquired through exercising stock options will be made identical to the anticipated treasury share retention period reported in the treasury share holding plan previously approved at a shareholder meeting, so long as the retention period does not exceed five years. Also, if a cancellation of treasury shares took place during this period, this will be considered as a disposal of treasury shares.

Fifth, in line with the revised Commercial Act, relevant rules change has been made to prohibit the disposal of treasury shares to an unspecified group of individuals. In this regard, only equal distribution of shares to existing shareholders or disposal to specified third-party individuals will be permitted. This will help to boost transparency in the disposal of treasury shares.

Sixth, there have been updates made to the corporate disclosure reporting rules and standards in accordance with the revised Commercial Act and FSCMA.

Under the ‘treasury share holding status’ section of business report, more specific details regarding listed companies’ treasury share holding and disposal plans will be included.

Additionally, in business report, listed companies will include the purpose of acquiring treasury shares in the first place, and this will help shareholders to better compare and examine the purpose of acquisition and the purpose of disposal to more properly evaluate the appropriateness of company’s treasury share holding and disposal plan.

Further Plan

The revised Enforcement Decree of the FSCMA and subordinate regulations will take effect from the day of promulgation (June 30).

The FSC expects that the changed rules will help to promote listed companies to make use of treasury shares for the purpose of shareholder return with the required cancellation of treasury shares. The revised rules are also expected to boost transparency along the way.

In effect, between January and May this year, listed companies have cancelled KRW43.1 trillion worth of treasury shares, which is more than double the amount seen in the entire year of 2025 (KRW21.4 trillion).

The FSC and the FSS will continue to provide support for listed companies and promote the use of treasury shares for the purpose of enhancing corporate value and improving shareholder return.

* Please refer to the attached PDF for details.