Joon Hyug Chung, Insider Trading Pre-Disclosure Rule in Korea, Korean Journal of Financial Law, Vol. 21, No.2(2024.08.), p.p. 141-177.
<Abstract>
The insider trading pre-disclosure system, effective from July 24, 2024, mandates that executives or major shareholders of publicly traded companies in Korea must report their trading plans to the Securities and Futures Commission and the stock exchange when they intend to trade specific securities involving a stake of 1% or more, or a transaction amount of 5 billion KRW or more. The report must include details such as the purpose, price, quantity, and duration of the planned transactions, and trading can only commence after a 30-day cooling-off period. This system, introduced almost 37 years after the implementation of insider trading regulations like the short-swing profit recovery system (1976), reporting requirements for executives' securities ownership (1982), and prohibitions against the use of material non-public information (1987), aims to achieve three main objectives: (1) mitigating sudden market fluctuations by disclosing critical information about insider trading plans in advance, thereby giving general investors time to react; (2) facilitating proof that insiders did not exploit material non-public information in their trades; and (3) reducing the likelihood of such misuse through the cooling-off period. The Korean insider trading pre-disclosure system shares similarities with the U.S. 10b5-1 Plan and the EU's Master Plan in that insiders must establish trading plans in advance. However, unlike in the U.S. and EU, where insiders voluntarily set up such plans to avoid allegations of insider trading, the Korean system requires mandatory reporting for trades above a certain threshold. The primary objective of the Korean system is to provide the market with critical information about insider transactions, distinguishing it from U.S. and EU practices. To prevent excessive restrictions on insider trading, the system exempts transactions involving less than 1% of shares or less than 5 billion KRW, as well as trades by institutional investors, M&A transactions, and sales for inheritance tax installment payments. However, given that institutional investors' trades can also significantly impact the market, the appropriateness of these exemptions needs review. This article explores the background and functions of the insider trading pre-disclosure system, compares it with related U.S. and EU systems, and discusses potential interpretive issues and legislative improvements for future operation.
<Keywords>
Insider Trading Pre-Disclosure, Material Non-Public Information, Insider Trading, Reporting of Specific Securities Transactions by Executives, Capital Markets, Investor Protection, Master Plan, 10b5-1 Plan.
Joon Hyug Chung, Insider Trading Pre-Disclosure Rule in Korea, Korean Journal of Financial Law, Vol. 21, No.2(2024.08.), p.p. 141-177.
<Abstract>
The insider trading pre-disclosure system, effective from July 24, 2024, mandates that executives or major shareholders of publicly traded companies in Korea must report their trading plans to the Securities and Futures Commission and the stock exchange when they intend to trade specific securities involving a stake of 1% or more, or a transaction amount of 5 billion KRW or more. The report must include details such as the purpose, price, quantity, and duration of the planned transactions, and trading can only commence after a 30-day cooling-off period. This system, introduced almost 37 years after the implementation of insider trading regulations like the short-swing profit recovery system (1976), reporting requirements for executives' securities ownership (1982), and prohibitions against the use of material non-public information (1987), aims to achieve three main objectives: (1) mitigating sudden market fluctuations by disclosing critical information about insider trading plans in advance, thereby giving general investors time to react; (2) facilitating proof that insiders did not exploit material non-public information in their trades; and (3) reducing the likelihood of such misuse through the cooling-off period. The Korean insider trading pre-disclosure system shares similarities with the U.S. 10b5-1 Plan and the EU's Master Plan in that insiders must establish trading plans in advance. However, unlike in the U.S. and EU, where insiders voluntarily set up such plans to avoid allegations of insider trading, the Korean system requires mandatory reporting for trades above a certain threshold. The primary objective of the Korean system is to provide the market with critical information about insider transactions, distinguishing it from U.S. and EU practices. To prevent excessive restrictions on insider trading, the system exempts transactions involving less than 1% of shares or less than 5 billion KRW, as well as trades by institutional investors, M&A transactions, and sales for inheritance tax installment payments. However, given that institutional investors' trades can also significantly impact the market, the appropriateness of these exemptions needs review. This article explores the background and functions of the insider trading pre-disclosure system, compares it with related U.S. and EU systems, and discusses potential interpretive issues and legislative improvements for future operation.
<Keywords>
Insider Trading Pre-Disclosure, Material Non-Public Information, Insider Trading, Reporting of Specific Securities Transactions by Executives, Capital Markets, Investor Protection, Master Plan, 10b5-1 Plan.