© Reuters. Insider stock trading must be reported 30 days in advance
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Introduce a system that requires the government to disclose trading plans at least 30 days in advance when trading shares of executives of listed companies and major shareholders. This is a measure to prevent illegal and unfair insider trading and protect minority shareholders. Companies are raising concerns that over-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 shares, they are required to disclose the purpose of the sale, as well as the expected price, quantity, and period, at least 30 days in advance. Enlarged image Generic investors who are not major shareholders are also included in the pre-disclosure if they trade 1% or more of their total stock or 5 billion won in transaction amount. In the event of non-compliance or non-compliance with the obligation to provide prior information, sanctions such as sanctions, financial penalties and administrative measures will be imposed depending on the seriousness of the crime.
A Financial Services Commission official said: “In the past, there have been frequent cases of stock price collapses due to the large-scale sale of shares by insiders such as executives of listed companies, which has raised dissatisfaction with public companies. investors and social concerns. We plan to submit it to the National Assembly and institutionalize it quickly, “he said. “It is practically difficult to block negotiations when the notice is introduced.
Encouraging Short Selling Bad News … “Ant Damage Only” Until now, only subsequent disclosure was required for stock transactions by insiders such as executives and major shareholders of Korean listed companies. As the shares were sold in large quantities, which inflicted severe damage on ordinary investors, rumors calling for stricter regulations began to rise.
In March, the Financial Services Commission took steps to prevent the sale of shares acquired through the exercise of stock options for six months after listing. The “Introduction of the Insider Trading Advance Disclosure System” announced this time is also a measure focused on investor protection in general. Some exceptions have also been made. The prior disclosure obligations will be exempted for some transactions that are unlikely to use substantial confidential information or that will not have a significant impact on the market. 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 predicts that if information on insider stock trading is disclosed in advance to general investors through the introduction of the system, the information gap will be narrowed and unfair and illegal actions by insiders will be eradicated.
Contrary to the expectations of the financial authorities, concerns are high in the sector. It should be noted that the same legislation on prior disclosure 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 the normal trading of shares by insiders could be practically “all-stop”. An investment banking (IB) official pointed out: “If the details of the transaction are disclosed in advance, there is a high possibility that large-scale equity transactions such as bulk transactions will not occur due to fluctuations. of prices “.
It should also be noted that the function of protecting minority shareholders is unlikely to function properly. A securities industry official said: “Even if the advance disclosure system is introduced, the impact that minority shareholders will receive is still the same.”
The exception to the “recognition of limited changes and withdrawals to the early disclosure system when excessive losses are expected due to increased market volatility” is also controversial.
An industry official said, “If the FSC has announced it, it means the plan can be withdrawn if a big loss is expected due to a sharp drop in share prices after announcing the sale of the shares.
Reporter Lee Dong-hoon [email protected]
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