New Insider Trading Rules in South Korea’s Financial Market: Advance Disclosures and Exempt Transactions
Recent amendments to the Financial Investment Services and Capital Markets Act (FSCMA) in South Korea bring new regulations on insider trading and securities fraud
Title: New Insider Trading Rules in South Korea’s Financial Market
Seoul, South Korea - The Financial Services Commission (FSC) in South Korea has announced new regulations on insider trading and securities fraud following an amendment to the Financial Investment Services and Capital Markets Act (FSCMA) in January 2024. effective on July 24, 2024, these amendments include disclosure requirements, definition of insider, exempt transactions, deviation and withdrawal, and calculation of administrative fines.
(1) Insider Disclosures
Listed company insiders, including directors, statutory auditors, and significant shareholders holding 10% or more of a company’s voting shares or have appointed representatives, must submit an advance disclosure of any plan to purchase or sell shares or securities convertible into shares at least 30 days before executing the transaction. Disclosures should include:
- Reporting party details
- Securities type
- Expected quantity
- Proposed trade purpose
- Trading method
- Expected price
- Trading period
(2) Definition of Insider and Exempted Parties
The new definition of ‘insiders’ in the FSCMA includes company directors, statutory auditors, and significant shareholders. However, funds, collective investment schemes, statutory funds, financial institutions, and licensed financial institutions are exempt from being considered insiders.
(3) Exempt Transactions
The detailed FSCMA Decree outlines exemptions from the insider trading disclosure requirement. Transactions under this category include:
- Trades below a certain value (5 billion KRW)
- Less than 1% of the total number of securities
- Required or suggested by law or authorities
- For market making and stabilization
- Upon exercise of stock options or conversions
- During private placements
- Related to M&A transactions or security rights
(4) Deviation and Withdrawal
Even with disclosed trading plans, trades may deviate up to 30% from the proposed trading value due to market developments. Companies experiencing excessive daily volatility (30% or higher), delisting, or suspension may permit insiders to withdraw previously disclosed trading plans. Additionally, a reporting party deceased or undergoing a statutory workout, rehabilitation, or bankruptcy proceeding may withdraw the plan.
(5) Administrative Fines
Violation of the insider trading disclosure rules can lead to administrative fines. The fine amount is calculated by multiplying a number between 4/100,000 and 2/10,000 with the listed company’s market capitalization, with a maximum of 2 billion KRW. No fines shall be imposed for violation if a period of five years has elapsed since the violation.
These updated regulations mark a significant step towards strengthening transparency and preventing potential manipulation in South Korea’s financial markets.