Disclosure Requirements - South Korea
Disclosure Category: 3
Investors holding Korean securities are required to report if they exceed the set thresholds and/or have short-sale positions.
Background and legal basis
The Financial Investment Services and Capital Markets Act (6 April 2021) (the “Act”) and the Enforcement Decree (10 May 2021) of the Act states the requirements for disclosure to the Financial Services Commission (the “FSC”), the Korea Exchange (the “KRX”) and the issuer.
Obligation to report threshold crossings
Article 147 of the Act requires that an investor holding 5% or more in a security issued by a KRX-listed company to report such holdings to the FSC and KRX within five business days from the trade date. Additionally, in the case of a simple portfolio investment (whereby the shareholding purpose is of "no intention of exercising influence over the management") the investor shall also declare its purpose of shareholding by way of a letter of confirmation. Thereafter, if there is a change of 1% or more for a general investment, a subsequent report shall be submitted to the FSC and KRX within ten business days from the trade date. However, if this change of 1% or more is part of a simple portfolio investment then the disclosure report shall be submitted to the FSC and KRX by the 10th calendar day of the following month. In case of change of 1% or more, for shareholdings with intention of exercising influence over the management, a subsequent report shall be submitted to the FSC and KRX within five business days from the trade date.
Such reports shall include the following information for each type of shareholding purpose:
Simple portfolio investment (shareholding with no intention of exercising influence over the management):
- Holding status;
- Purpose of Holding;
- Information concerning the substantial shareholder and his/her related persons;
- Information concerning the issuer and the date, price, and method of acquisition or disposal; and
- A commitment that the person will not engage in any conduct to exercise any other rights other than the right entitled by the law.
General investment (shareholding with no intention of exercising influence over the management):
- Holding status;
- Purpose of Holding;
- Information concerning the substantial shareholder and the related persons;
- Information concerning the issuer and the date, price, and method of acquisition or disposal;
- Details of source of funds necessary for acquisition; and
- Terms and conditions and/or contract related to the holding stocks.
Shareholding with intention of exercising influence over the management:
- Matters concerning the person and his/her related persons;
- Matters concerning the issuer;
- Grounds for such change;
- The date, price, and method of acquisition or disposal;
- The form of holding; and
- Details of procurement of funds necessary for acquisition or the goods subject to the exchange etc.
These reports are to be submitted to the Financial Supervisory Service (the “FSS”) via the website page or using the appropriate form from the FSS.
As per Article 148 of the same Act, a copy of the report shall also be provided to the issuer.
Once the holdings reach 10%, the investor, as per Article 9 (1) of the Act, is considered a major shareholder and as per Article 173 of the Act, shall file a report to the FSC and KRX within five business days from the settlement date. All subsequent acquisitions and disposals of any size shall also be reported to the FSC and KRX within five days from the settlement date. This is in addition to the reporting required, as per Article 147 of the Act, whereby a holding of 5% or more in a security issued by a KRX-listed company shall be reported.
Such reports shall include the following information:
- The background of the person or group;
- The source of funds used and the purpose of the acquisition;
- The number of shares owned; and
- Any relevant contracts, arrangements or understandings.
These reports are to be submitted to the Financial Supervisory Service (the “FSS”) via the website page or using the appropriate form from the FSS.
As per Article 148 of the same Act, a copy of the report shall also be provided to the issuer.
Sanctions
When an investor fails to comply with the disclosure requirements related to the 5% threshold (including, but not limited to, late disclosure, misrepresentation or omission of material facts), then:
- According to Article 150 of the Act, such a person shall be restricted from exercising their voting rights with respect to the ownership of equity securities exceeding 5% and/or the FSC may issue an order to sell or dispose of those shares within six months; or
According to Article 151 of the Act, the FSC may issue an administrative order to:
- Provide relevant information for their investigation; or
- Submit a corrected report; or
- Suspend trading activities or the shareholder; or
- Recommend the dismissal of officers; or
- Refer the matter to the prosecutor’s office; or
- Issue a warning letter or letter of caution.
Under Article 445 of the Act, when the case related to the 5% threshold is referred to the prosecutor’s office and:
- The violation is a case where the investor fails to submit the 5% disclosure report within the deadline, then the investor shall face a penalty or sanction of up to maximum three years of imprisonment or a fine of up to maximum KRW 100 million; or
Under Article 444 of the Act, when the case related to the 5% threshold is referred to the prosecutor’s office and:
- The violation is a case where the investor submits the disclosure report on time, but provides false details or neglects to report important facts, then the investor shall face a penalty or sanction of up to maximum five years of imprisonment or a fine of up to maximum KRW 200 million.
When an investor fails to comply with the disclosure requirements related to the 10% threshold (including, but not limited to, late disclosure, misrepresentation or omission of material facts) then according to Article 446 of the Act, such person shall face a penalty or sanction of up to maximum one year of imprisonment or a fine of up to maximum KRW 30 million and/or the FSC may issue an order for corrective action, censure, and/or referral to the law enforcement authorities for criminal prosecution.
Under Article 445 of the Act, when the case related to the 10% threshold is referred to the Securities and Futures Commission and the investor fails to comply with the investigation, then such person shall face a penalty or sanction of up to maximum three years of imprisonment or a fine of up to maximum KRW 100 million.
Obligation to report short-sale positions
Under Articles 180-2 of the Act and 208-2 of the Enforcement Decree of the Act and with regards to shares listed on the KRX, an investor with a short-sale position, that is equal to or over the threshold of 0.01% of the outstanding listed shares, shall report the following information to the KRX, via FSS:
- Details of the stock;
- Details of the seller – name, address, nationality, date of birth, and IRC number (if the seller is a foreign investor);
- Details of the proxy agent (if the disclosure is made by a proxy agent); and
- Date when the short-sale position became applicable for disclosure.
An investor with a short-sale position with a value over KRW 1 billion shall also be required to report the information above, regardless of the short-sale position ratio. Where the value of the short-sale position is less than KRW 100 million, the short-sale position reporting shall be waived, regardless of the short-sale position ratio.
The report shall be made immediately after the market closes, on the second business day from the day that the short-selling position exceeds the threshold.
Investors should also keep the data of the reporting for up to five years and be ready to provide the data to the FSC, as and when requested.
According to Articles 180-3 of the Act and 208-3 of the Enforcement Decree of the Act, when the threshold of the short-sale position is equal to or over 0.5% of the outstanding listed shares, the details of the seller that are reported by the investor shall be published on the KRX website.
Sanctions
According to Article 449 of the Act, an investor who fails to comply with the disclosure requirements related to short-sale positions (including, but not limited to, late and/or false disclosure) shall be penalised with a fine for negligence not exceeding KRW 100 million.
Under Article 445 of the Act, when the case related to the short-sale position is referred to the Securities and Futures Commission and the investor fails to comply with the investigation, then such person shall face a penalty or sanction of up to maximum three years of imprisonment or a fine of up to maximum KRW 100 million.