Stricter Disclosure on Treasury Share Holdings and Disposal... Issuance of EBs Backed by Treasury Shares Prohibited

Cabinet Approves Amendments to Capital Markets Act Enforcement Decree
New Rules to Take Effect Immediately Upon Promulgation on June 30

Going forward, all listed companies holding treasury shares will be required to disclose not only the current status of their treasury stock holdings, but also their plans for disposal or cancellation, as well as the progress of implementation. The issuance of exchangeable bonds (EB) backed by treasury shares will also be prohibited.

On June 23, the Financial Services Commission announced that the Cabinet had approved an amendment to the Enforcement Decree of the Financial Investment Services and Capital Markets Act reflecting these measures. This amendment is a follow-up to the revision of the Commercial Act in March, and aims to prevent companies from arbitrarily utilizing treasury shares by revising subordinate regulations. The new enforcement decree will be promulgated and take effect on June 30.

The revised enforcement decree expands the disclosure requirements to all listed companies holding treasury shares, requiring them to disclose their holding status and disposal plans. As a result, shareholders will now be able to review detailed information on treasury share holding and disposal plans approved by the general shareholders' meeting through business reports and other documents. Previously, the disclosure obligation was imposed only on listed companies holding treasury shares amounting to 1% or more of their total issued shares.

In addition, regulatory adjustments were made in accordance with the revised Commercial Act. The issuance of exchangeable bonds (EB) backed by treasury shares has been completely banned, and all related provisions have been deleted from the revised enforcement decree and subordinate regulations. In the past, the issuance of EBs using treasury shares was frequently abused as a de facto means of defending management rights through loopholes.

The enforcement decree also stipulates that trust companies are not allowed to dispose of treasury shares during the term of a trust contract for the acquisition of treasury shares. Upon the termination or cancellation of the trust contract, the treasury shares must be returned to the company as the trustee. Additionally, treasury shares acquired through the exercise of appraisal rights must be disposed of within the holding period specified in the disposal plan approved at the general shareholders' meeting, and the holding period cannot exceed five years. Provisions related to the market sale of treasury shares to unspecified parties in the regular market have also been deleted from the subordinate regulations.

The Financial Supervisory Service has revised the corporate disclosure form standards related to treasury shares in accordance with the amended Commercial Act and capital markets regulations. Additional items have been included so that the details of treasury share holding and disposal plans, whether approved or pending approval at the general shareholders' meeting, can be easily checked in the business report. Furthermore, companies are now required to specify the original purpose for which the treasury shares were acquired.

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