Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Companies to face stricter disclosure obligations on treasury stocks
Financial Services Commission Vice Chairman Kim So-young speaks during a meeting to improve corporations' treasury stock system at the government complex in central Seoul, Tuesday. Yonhap
By Anna J. Park
Financial authorities to overhaul treasury stock system
From the second half of this year, a company will face stricter disclosure obligations on its handling of treasury shares, ranging from the acquisition and holding to disposal, the country's top financial regulator announced Tuesday.
Allocating new shares for a listed company's treasury stocks in case of a spin-off of the listed company's business units will also be prohibited.
These are some of the measures announced earlier in the day by the Financial Services Commission (FSC), which aims to prevent misuse of the treasury stock system by corporations.
Treasury stocks are reacquired or repurchased stocks of a company's previously issued shares, which the company bought back from shareholders. The reacquired shares will then either be permanently out of market circulation by retirement or held under the company's possession.
"Unlike situations in the advanced capital markets like in the United States, the treasury stock system in the country tends to be misused for purposes like strengthening the interests of controlling shareholders, rather than to serve its original purpose of enhancing shareholder value," FSC Vice Chairman Kim So-young said during a meeting to discuss ways to improve the country's treasury stock system at the government complex in Seoul on Tuesday.
Kim added that the FSC, as well as scholars and experts in the industry who have long studied the issue, regard that such misuses of the treasury stock system have been one of the key factors that created and maintained the so-called "Korea discount," referring to a phenomenon of the long-standing undervaluation of listed companies, compared to their fundamentals, on the Korean stock market.
Financial Services Commission Vice Chairman Kim So-young, right, speaks during a meeting to improve corporations' treasury stock system at the government complex in central Seoul, Tuesday. Yonhap
The FSC first proposed prohibiting the issuance of additional treasury stocks in case of a spin-off of a business unit of a listed company to protect the rights of general shareholders during the spin-off process.
Furthermore, when a newly established spun-off company seeks a re-listing on the stock markets, the financial authorities will ensure that the company has fully prepared measures to protect the rights and interests of existing ordinary shareholders during the listing review process.
The government will also adopt a stricter disclosure scheme on the part of listed companies over the process of acquiring, holding and disposing of treasury stocks to address concerns that information related to treasury stocks is not being provided to the market in a timely and sufficient manner.
The FSC hopes these regulatory changes can facilitate strengthened market monitoring and restraint mechanisms concerning the disposal of treasury stocks by listed companies.
The FSC plans to revise enforcement decrees of the Capital Market Act during the first half of this year to implement the measures by the second half.
It vowed to continue making efforts to resolve the Korea discount problem.