Major shareholder notification triggers eased by regulator

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Major shareholder notification triggers eased by regulator

Major shareholders will now be able to increase their stakes in companies without making so many disclosures as the authorities aim to allow more flexibility for acquirers.

The changes, which are scheduled for the first quarter of next year, come as more institutions adopt stewardship codes and become more active in exercising their rights as shareholders, especially in cases where directors have violated the law.

It is hoped that the reforms encourage more shareholders to actively voice their rights in company managements.

According to the Financial Services Commission on Thursday, the regulation requiring shareholders to disclose when they have broken the five-percent threshold will be eased. The rule requiring shareholders already above 5 percent to make a disclosure when increasing or decreasing their stake more than 1 percentage point will also be eased.

Under the current law, public notification can only be delayed when the intention is not to alter control of the company. The regulation was established to prevent hostile mergers and acquisitions.

The financial authority is relaxing the regulations by specifying the conditions it considers to be “influencing management.”

Institutional investors will be exempt from making the notifications when they plan to exercise their rights to remove executives who have committed crimes. Mandatory notification will also be waived when institutional investors, such as public pension funds, follow their general principles of pushing for amendments in the articles of association to improve corporate governance.

Mandatory notification will still be required when the institutional investor increases ownership with the intention of purposefully influencing management decisions against the wishes of the companies, such as appointing or removing executives.

The financial authority said it has decided to relax the regulations as the number of investors adopting stewardship codes has been on the rise and more institutional investors are now actively exercising their rights to push for an improvement in governance structures and better dividend policies.

Such active engagement demands changes to the regulations.

“As shareholder activities related to governance structure improvement and dividend policies have increased, the number of issues in which it is unclear whether they are ‘influencing management rights’ or not has increased,” said a Financial Services Commission (FSC) official.

“As the definition of influencing management rights is relatively broad and unclear, some of the active shareholders may unintentionally violate their public notification requirements.”

As of June this year, 100 institutional investors have adopted stewardship codes.

The FSC has also enhanced the 10 percent rule. Investors with more than 10 percent of a company have been required to return any short-term profits that they have made in the six months prior to going from a passive investor to one actively engaged in management.

This regulation is to eliminate any profits made through inside information.

Until now, public pension funds were exempt from returning the profits that they made if there were no concerns over the using of insider information.

But the FSC said considering the active adoption of stewardship codes, the 10 percent rule will be applied even to public pension funds.

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