Advanced Capital Market and Unrelated “Stock Price Suppression Prevention Law” The “Capital Markets and Financial Investment Services and Activities Act” (hereinafter referred to as the “Capital Market Act”), which was enacted on August 4, 2007, and has been implemented in full since February 4, 2009, was established with the purpose of contributing to the sound development and transparency of the capital market and the protection of investors by comprehensively regulating financial investment services and activities and the issuance and trading of securities, etc. In line with this purpose, the Capital Market Act has introduced various systems such as strengthening disclosure obligations for issuers, improving market transparency, enhancing trading supervision, and introducing a market abuse prevention system. However, despite these efforts, there are criticisms that the current Capital Market Act has not been able to properly regulate the market and protect investors, and there are opinions that it is necessary to improve the Capital Market Act to make it more effective in regulating the market and protecting investors. In this situation, the “Act on the Prevention of Stock Price Suppression” (hereinafter referred to as the “Stock Price Suppression Prevention Act”) was proposed by Rep. Kim of the Democratic Party on April 14, 2011. The main contents of the proposed bill are to add “Article 14-2 (Prohibition of Stock Price Suppression)” and “Article 14-3 (Presumption of Stock Price Suppression)” to the Capital Market Act. The proposed Article 14-2 (Prohibition of Stock Price Suppression) of the bill stipulates that “In trading securities, no person shall take or promise to take any action that would have an unfair impact on the formation of stock prices, such as manipulating stock prices through planned trading, or trading at a predetermined price or higher or lower than a predetermined price.” The proposed Article 14-3 (Presumption of Stock Price Suppression) of the bill stipulates that “In cases where a person trades securities at a predetermined price or higher or lower than a predetermined price, it shall be presumed that such person has taken an action that would have an unfair impact on the formation of stock prices, such as manipulating stock prices through planned trading.” In addition, the proposed bill provides that a person who violates Article 14-2 (Prohibition of Stock Price Suppression) shall be punished by imprisonment for not more than 10 years or a fine of not more than 1 billion won, and a person who has been punished for violating Article 14-2 (Prohibition of Stock Price Suppression) shall be punished by imprisonment for not more than 15 years or a fine of not more than 2 billion won if he/she commits the same offense again within 5 years after the date of such punishment. The enactment of the Stock Price Suppression Prevention Act is intended to prevent stock price manipulation and protect investors by prohibiting planned trading and other actions that have an unfair impact on the formation of stock prices. However, some argue that the enactment of the Stock Price Suppression Prevention Act is not necessary because the Capital Market Act already has provisions regulating market manipulation, such as Article 101 (Market Manipulation), and that the enactment of the Stock Price Suppression Act would only create legal confusion and increase the number of overlapping regulations. In addition, some argue that the provisions of the Stock Price Suppression Prevention Act, such as presumed guilty under certain circumstances, may violate the presumption of innocence and the principle of no punishment without law, which are fundamental principles of the Constitution. In light of the above, this report aims to examine the legislative necessity and appropriateness of the proposed Stock Price Suppression Prevention Act and to provide a legislative improvement plan for the Capital Market Act. To this end, this report first examines the current status of the Capital Market Act and the problems of the current system, and then examines the legislative necessity and appropriateness of the proposed Stock Price Suppression Prevention Act. Next, this report analyzes the problems of the proposed Stock Price Suppression Prevention Act and suggests a legislative improvement plan for the Capital Market Act. Finally, this report concludes with an evaluation of the legislative improvement plan and provides a conclusion. The report consists of a total of 56 pages, including 5 chapters and 1 conclusion. Chapter 1 introduces the background and purpose of the research, and Chapter 2 examines the current status and problems of the Capital Market Act. Chapter 3 examines the legislative necessity and appropriateness of the proposed Stock Price Suppression Prevention Act, and Chapter 4 analyzes the problems of the proposed Stock Price Suppression Prevention Act and suggests a legislative improvement plan for the Capital Market Act. Chapter 5 evaluates the legislative improvement plan and provides a conclusion. This report is expected to contribute to the sound development of the capital market and the protection of investors by providing a legislative improvement plan for the Capital Market Act.
On August 3rd, the '2026 Tax Reform Bill' was released. A significant portion of interest among shareholders in the stock market concerned the proposed 'stock price suppression prevention law', which aimed to reform the assessment method for listed shares. However, the details of the proposal fell short of explicitly stating the goal of 'preventing stock price suppression'.
The background of the current inheritance tax reform debate lies in the overarching policy objective of advancing the capital market, which has been pursued through measures such as the amendment of corporate governance statutes, the establishment of a corporate value enhancement plan, the mandatory disclosure of sustainability information, and the prohibition of redundant listings.
Each change has been geared towards ensuring that listed companies consider the interests of all shareholders in decision-making processes and to transparently disclose crucial information for investment assessment. The debate on inheritance tax reform started with a similar aim. Under the current inheritance tax law, inheritance tax is levied based on the average stock price over the two months prior to and after the inheritance date.
Listless shareholders are therefore incentivized to prefer a stock price increase, inadvertently causing companies' stock prices to trade at levels lower than their actual asset value. While it may seem natural for a listed company to have a portion of its shares held by ordinary shareholders, this practice can negatively impact the interests of ordinary shareholders.
As such, during the initial stages of the inheritance tax reform debate, companies with a market value below 80% of their net asset value were subjected to an assessment based on the company's asset value and earnings value, with a minimum threshold set at 80% of the net asset value, excluding the right to purchase the shares at a premium held by the largest shareholder.
This was intended to prevent companies' values from being artificially depressed. However, the recently released reform bill has expanded the criteria to include companies whose net asset value ranks in the bottom 12 of 13 recent quarters, as well as companies that engaged in questionable capital market activities such as secondary stock issuance and exchange recapitalization in the past year, resulting in a stock price decline of over 30% compared to the recent average price.
In such cases, the bill proposes extending the assessment period and imposing a minimum 30% inheritance tax, assuming the possibility of 'anticipatory stock price suppression'. This approach could be beneficial for growth-oriented companies, as well as those suffering from prolonged undervaluation, even if it means a higher inheritance tax.
However, the primary objective of this reform is not aligned with advancing the capital market, raising concerns about the direction of the tax policy and the potential consequences on market stability.
Written by urgent.news from Hankyoreh's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
