Reporting requirements are being eased for investors seeking to exercise shareholder rights in relation to corporate governance, executive pay and dividend policy.
South Korea’s FSC (Financial Services Commission) is easing its ‘Five Percent Rule’ in a bid to better support the exercise of shareholder rights by institutional investors.
The Five Percent Rule mandates any investor that owns five percent or more of the shares of a listed company must file a report within five days in the event of any change in stock ownership.
The FSC hinted at the possibility of revising the Five Percent Rule in May, saying the rule has been blamed for restraining shareholders from actively exercising their voting rights due to the risk of unintentionally violating disclosure requirements.
The Five Percent Rule is intended to apply to investors whose purpose is to exercise management control rather than seek investment returns, but it does not specifically define the scope of shareholder activities that impact management, making it difficult for institutional investors to actively exercise their shareholder rights.
To better support the exercise of shareholder rights by institutional investors, the rule has been revised to clarify the scope of shareholder activities that involve ‘exercising influence’ over management, such as proposals to appoint or dismiss executive officers, and to apply differential reporting requirements according to the shareholding purpose.
There is now an exemption from the requirement to file detailed disclosures within five days for shareholder proposals regarding corporate governance, executive pay and dividend policy. Instead, simple reporting will be allowed – within 10 days for active shareholders and monthly reporting for simple investment.
The amended rules, outlined here, take effect from 1 February 2020.