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[18963]
June 22, 2005
TO: INTERNATIONAL COMMITTEE No. 13-05
INTERNATIONAL INVESTING SUBCOMMITTEE No. 2-05
INTERNATIONAL OPERATIONS ADVISORY COMMITTEE No. 12-05
RE: KOREAN FSS STAFF CLARIFIES STANDARD IN 5% OWNERSHIP REPORTING
RULE
Korean securities regulators recently amended the rules requiring disclosure of major
shareholdings in Korea. Under the amended rule, which took effect on March 29, 2005, an
investor that acquires 5% or more of a publicly traded company’s total outstanding shares, or
changes ownership by 1% or more thereafter, must disclose that fact within five days of the
transaction.
Under the amended rule, investors are required to disclose the specific purpose of the
investment, certifying that it is either “for investment only” or that it is for the purpose of
“exercising influence on management.” At recent International Committee and subcommittee
meetings, members expressed concerns that the phrase “exercising influence on management”
could be broadly construed to include actions such as the routine voting of shares or routine
contact with a portfolio company’s management, making it difficult or impossible to certify that
the investment was being made for investment purposes only.
We sought clarification on this point from the representative office of the Financial
Supervisory Service (FSS) in Washington, D.C., headed by Yoon Kon Choi. Mr. Choi clarified
that the FSS does not consider the routine exercise of shareholder rights to be “exercising
influence over management.” Instead, the FSS considers investors to be “exercising influence
over management” if they make a shareholder proposal or request a shareholder meeting to
take a corporate action set forth in Presidential Decree 86-7. The types of corporate actions set
forth in that Decree include selecting, suspending or firing directors or auditors, changing the
company’s capital structure, declaring a dividend, or merging or splitting the company. Mr.
Choi also provided a copy of an FSS press release from March 31, 2005 on the amendments to
the 5% ownership reporting rule, a copy of which is attached.
Robert C. Grohowski
Associate Counsel
Attachment (in .pdf format)