The Securities and Exchange Law of Korea requires any investor (together with any special related persons) who acquires 5% or more of total outstanding shares in a listed company (or who changes their share ownership by 1% or more thereafter) to file a report to the Financial Supervisory Commission of Korea and the Korea Exchange within five days of the relevant transaction. This filing requirement is referred to as the 5% rule, which helps to promote transparency in the market and prevent hostile takeovers. Any investor failing to comply with the 5% rule can be restricted from exercising their voting rights and ordered to sell the acquired shares.
The 5% rule under the Securities and Exchange Law has been amended effective March 29 2005 and the pertinent changes are as follows:
An investor is required to declare whether their investment purpose is to "exercise influence on the management" of an investee company. Whether or not there is a change in share ownership, an investor must report if there is any change of investment purpose (within five days from the date of the change). Exercising influence on the management includes appointing and removing officers and amending the investee company's articles of incorporation.
An investor that filed a report under the 5% rule before the enforcement of the amended 5% rule (regardless of whether there is a change in share ownership) is required to re-file between March 29 and April 2 2005 if their intended investment purpose is to exercise influence on the management.
Any investor whose reported investment purpose is to exercise influence on the management of the investee company will be subject to a cooling-off period of five days from the date of their report, and will be restricted from exercising their voting rights or further acquiring any shares in the investee company during this period.