© Archyde.com. Insider stock trading must be disclosed 30 days in advance
Introduce a system that requires the government to disclose trading plans at least 30 days in advance when trading stocks of listed company executives and major shareholders. This is a measure to prevent illegal and unfair insider trading and protect minority shareholders. Companies are raising concerns that excessive regulation will only fuel market chaos.
On the 12th, the Financial Services Commission announced a plan to introduce a pre-disclosure system for insider trading. The key is that when insiders such as executives and major shareholders of listed companies trade stocks, they are required to disclose the purpose of the sale, as well as the planned price, quantity, and period, at least 30 days in advance. Larger image Even general investors who are not major shareholders are included in the pre-disclosure if they trade 1% or more of their total stock or 5 billion won in transaction amount. In case of non-compliance with or non-compliance with the prior disclosure obligation, sanctions such as penalties, fines, and administrative measures will be imposed depending on the severity of the offense.
An official from the Financial Services Commission said, “In the past, there have been frequent cases of stock prices plummeting due to the sale of large-scale stocks by insiders such as listed company executives, which has raised investor dissatisfaction and social concerns. We plan to submit it to the National Assembly and quickly institutionalize it,” he said. “It is practically difficult to block deals when advance notice is introduced.
Encouraging short selling of bad news… “Only ants damage” Until now, only post-disclosure was obligatory for stock transactions by insiders such as executives and major shareholders of listed companies in Korea. As the stocks were sold in large quantities, which inflicted great damage on ordinary investors, voices calling for stricter regulations began to grow.
In March, the Financial Services Commission took measures to prevent the sale of stocks acquired through stock option exercise for six months following listing. The ‘Introduction of the Insider Trading Advance Disclosure System’ announced this time is also a measure focused on protecting general investors. Some exceptions were also made. Prior disclosure obligations will be exempted for some transactions that are unlikely to use undisclosed material information or are not likely to have a significant market impact. Transactions that are difficult to disclose in advance, such as mergers and acquisitions (M&A) in the form of inheritance, stock dividend, and stock transfer, are also excluded from disclosure.
The FSC expects that if insider stock trading information is disclosed to general investors in advance through the introduction of the system, the information gap will be narrowed and unfair and illegal actions by insiders will be eradicated.
Contrary to expectations from the financial authorities, concerns are high in the industry. It is pointed out that the prior disclosure legislation itself is excessive. An official from the Korea Listed Companies Association said, “In order to prevent unfair trade by insiders, it is sufficient to introduce a prior notification system to notify the Korea Exchange or financial authorities. .
There is also concern that even normal stock trading by insiders may be virtually ‘all-stop’. An investment banking (IB) industry official pointed out, “If the details of the transaction are disclosed in advance, there is a high possibility that large-scale stock transactions such as block deals will not occur due to price fluctuations.”
It is also pointed out that it will be difficult for the minority shareholder protection function to work properly. An official from the securities industry said, “Even if the advance disclosure system is introduced, the impact that minority shareholders will receive is the same anyway.”
The exception to ‘recognizing limited advance disclosure system changes and withdrawals when excessive losses are expected due to increased market volatility’ is also controversial.
An industry official said, “If the FSC announced it, it means that the plan can be withdrawn if a large loss is expected due to a sharp drop in stock prices following announcing the sale of stocks. said
Reporter Lee Dong-hoon leedh@hankyung.com
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