South Korean institutional players stay lukewarm to the so-called stewardship code, a set of guidelines introduced three months earlier, to encourage them to engage more actively in corporate governance and board decisions due to the risk of using undisclosed information.

According to the investment bank industry on Thursday, there has been no financial institutions applying the stewardship code since Corporate Governance Service under the umbrella of Korea exchange introduced it in December last year, even though some major players such as National Pension Service, the Korean Teachers’ Credit Union, Samsung Asset Management and Mirae Asset Global Investments showed their interest in the code.

The stewardship code was first introduced in the United Kingdom in 2010 to promote institutional investors’ active engagement in corporate asset management as stewards of companies.

Despite its potential positive effects to shareholders, the possibility of violating capital market law that bans using undisclosed information in stock transaction scare Korean institutional investors from adopting the guideline, according to source. “There is no clear criteria regarding how to use the undisclosed information obtained during our participation in a company’s important decision-making,” said an unnamed high-level official from an asset management firm.

An institutional investor adopting the code can be categorized as an investor engaging with corporate management barred from making profits through short-term trading of the company’s stocks. The nation’s capital market law currently stipulates that a company can request its executives, employees and major shareholders who take part in the company’s decision-making to return profits from stock transactions within six months after obtaining the company stocks.

An investor engaging with corporate management is required to report more than one percentage point of transaction of stocks that they own more than 5 percent in a certain company within five trading sessions, compared to a regular investor who can report the same amount of transaction until the 10th day of each month. “An investor participating in a company’s management is subject to much more disclosure requirement regulations,” said an official from an asset manager.

By Choi Jae-won

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