"The use of undisclosed information by insiders depends on whether the stock transaction occurred before or after the information was disclosed. It is so important that the capital market law enforcement decree sets out the criteria. However, this criterion only specifies (means of information diffusion) through general newspapers, terrestrial broadcasts, and Yonhap News reports. Internet media is not yet included. People are obtaining much information through YouTube, social media, and online news. If relevant laws and regulations are well organized, we will be able to conduct more thorough and accurate investigations." (a staff member from the Korea Exchange)
"You're saying that the media serving as the standard for the timing of information disclosure should match reality? It's such an obvious statement... Let's process that right away." (President Lee Jae-myung)
It seems that an enforcement decree related to the relatively frequent type of unfair transactions occurring in the stock market, 'use of undisclosed information', will soon be revised. This means that the enforcement decree of the capital market law, which has been neglected for a long time without being revised, will be modified to assess the use of undisclosed information appropriately.
A call for this was made during President Lee Jae-myung's first visit to the Korea Exchange since taking office on the 11th of this month. As President Lee promised prompt improvements to the system, the revision of the enforcement decree is expected to gain momentum.
According to the financial investment industry on the 13th, there are three key points when determining whether the prohibition on using important undisclosed information has been violated: ▲ whether the information is undisclosed ▲ whether the information is important ▲ whether the insider or a direct recipient of the information (primary recipient) attempted to gain a profit or avoid a loss by using that information.
Undisclosed information is considered public only after the 'notice period and time' has passed. This means that a certain period must elapse for an unspecified majority to access information through media, etc. Standards have been established to regulate so that insiders do not gain unfair profits from confidential company information that could affect stock prices before it is disclosed to the market.
This standard is specifically stated in Article 201, Paragraph 2 of the Capital Market Law Enforcement Decree. Information is considered undisclosed until three hours after it is announced through the Financial Supervisory Service electronic disclosure system (DART) or Korea Exchange corporate disclosure channel (KIND), before 6 a.m. on the day it is posted in two or more daily newspapers, or within six hours after it is disclosed through terrestrial broadcasts or Yonhap News. In simple terms, insiders must trade stocks only after this point to avoid issues regarding the use of undisclosed important information.
The problem is that this clause has not changed since 2013. In particular, the last update was the addition of Yonhap News in 2009, and there has not been an increase in the media through which the timing of undisclosed information is judged. In the meantime, the avenues for distributing investment-related information have expanded significantly beyond traditional media outlets to include rapidly growing online media, stock-related online communities, and social media (SNS).
According to the current standards, even if information has already been made public through numerous YouTube channels, if an insider traded stocks before the notice period and time has elapsed through the media listed in the enforcement decree, they could be punished for unfair transactions.
A financial authority official noted, "While a comprehensive consideration is made when judging unfair transactions using undisclosed important information, the provisions of the law cannot be applied arbitrarily, and there seems to be a necessity to improve the system to reflect the changing times."
Specific discussions are necessary regarding institutional improvements, but there is a high possibility of expanding the media used to judge the timing of undisclosed information. Additionally, as information spreads more quickly than in the past, the notice period and time may also be shortened.
As President Lee has requested measures for fairness and transparency related to the capital market, other measures, including the 'one-strike-out system' for unfair transactions such as stock manipulation, are also expected to gain speed. It has been reported that a meeting was held the same day after the Korea Exchange briefing, chaired by Kim Yong-beom, head of the Policy Office, with officials from the financial authorities.