The Era of ₩36 Trillion Treasury Share Cancellation: How the Commercial Act Amendment Passed by the Legislative Committee Will Transform Korea's Stock Market

On February 20, 2026, a bill that could reshape the landscape of Korea's capital markets passed through the National Assembly's Legislation and Judiciary Committee subcommittee.

TL;DR

• February 20, 2026: The 3rd Commercial Act amendment on mandatory treasury share cancellation passed the Legislative Committee subcommittee (led by Democratic Party, 7:4 vote)
• Newly acquired treasury shares must be cancelled within 1 year, existing holdings within 1.5 years from law enforcement
• Affects approximately ₩36 trillion in KOSPI treasury shares, expecting 3.2% EPS improvement
• Controversy: Enhanced shareholder returns vs. weakened management defense & SME burden
• Fines up to ₩50 million for violations, exemptions possible with shareholder meeting approval

What Happened: Core of the Bill

Passage Process

On February 20, the National Assembly's Legislation and Judiciary Committee's Bill Review Subcommittee No. 1 held a meeting and voted on the 3rd Commercial Act amendment containing mandatory treasury share cancellation. It passed with 7 votes in favor (6 from the Democratic Party + 1 from the Rebuilding Korea Party) and 4 against (People Power Party).

Key Provisions

• Newly acquired treasury shares: Cancellation within 1 year from acquisition date
• Existing treasury shares: Cancellation within 1.5 years from law enforcement date (including 6-month grace period)

Exemptions from cancellation obligation for the following purposes:

• Proportional and equal disposal to shareholders
• Employee compensation (stock options, etc.)
• Employee stock ownership plan implementation
• However, even in these cases, annual shareholder meeting approval of treasury stock holding and disposal plan is mandatory

When disposing of treasury shares, the principle is proportional and equal disposal to shareholders based on their stake, similar to new share issuance

Fines up to ₩50 million for violations

Why Now: Korea Discount and K-Capital Market Committee

Background: Resolving the Korea Discount

Korea's stock market has long suffered from the undervaluation (Korea Discount) problem compared to global markets. Companies acquired treasury shares but held them without cancellation, drawing sustained criticism that genuine shareholder returns weren't being realized.

In the US, 80-90% of acquired treasury shares are voluntarily cancelled, but Korea's cancellation rate was only 36% until 2022. While it rose to 68% in 2024, criticism persisted that it was still being abused as a management defense tool for controlling families.

Driving Force: Democratic Party's K-Capital Market Committee

The Democratic Party has been pushing capital market reform centered on the 'Korea Premium K-Capital Market Special Committee' (formerly KOSPI 5000 Committee). Committee Chair Oh Ki-hyung emphasized enhanced shareholder authority immediately after the bill's passage, saying "What the board of directors used to decide arbitrarily has now been entrusted to the shareholder meeting."

Who's Involved: Stakeholder Landscape

Supporters: Democratic Party, Individual Investors, Foreign Investors

Positive Outlook

• EPS Improvement: Full cancellation would increase EPS by approximately 3.2% for KOSPI, 2.1% for KOSDAQ (Daishin Securities)
• Enhanced Shareholder Value: Prevents per-share value dilution by reducing outstanding shares
• Transparency: Improved governance structure through mandatory shareholder meeting approval
• Market Trust: Clear shareholder return policy preferred by foreign investors

Opponents: People Power Party, Business Community, SME Sector

Negative Concerns

• Weakened Management Defense: Loss of defense mechanism against hostile M&A
• SME Burden: 88.5% of treasury share-holding companies are small and medium enterprises
  • 1,788 out of 2,606 total listed companies hold treasury shares
  • Large enterprises 11.2%, medium enterprises 44.9%, small enterprises 43.6%
• Reduced Financial Flexibility: Decreased management flexibility for restructuring, business reorganization, M&A, etc.
• Reduced Acquisition Incentive: Possibility that treasury share purchases themselves will decrease, eliminating stock price support effect

Special Case: Companies Like KT with Foreign Ownership Limits

For companies like KT where treasury share cancellation would push foreign shareholder stakes above 50%, special provisions (3-year disposal grace period) are expected to be included.

How Long Will It Last: Plenary Session Schedule and Market Reaction

Upcoming Schedule

1. Target: Passage in February extraordinary session plenary (Democratic Party policy)
2. After law enforcement: Companies' cancellation or shareholder meeting approval procedures within 1 to 1.5 years
3. Short-term expectation: Surge in treasury share disposal disclosures

Market Outlook

Positive Scenario

• ₩36 trillion treasury share cancellation → Strong short-term stock price support
• Valuation reassessment through EPS/BPS improvement
• Increased foreign capital inflow

Negative Scenario

• Decreased new treasury share acquisitions by companies → Long-term weakening of stock price defense mechanism
• SME financial deterioration → Increased KOSDAQ market volatility
• Management uncertainty → Reduced corporate investment

Checklist: What Investors and Companies Should Verify

Investors

Companies

References

• Yonhap News: 'Treasury Share Cancellation' 3rd Commercial Act Amendment Passes Legislative Subcommittee Led by Ruling Party
• Hankyoreh: 'Mandatory Treasury Share Cancellation' 3rd Commercial Act Amendment Passes Legislative Committee Subcommittee
• Law Times: 'Mandatory Treasury Share Cancellation' 3rd Commercial Act Amendment Passes Legislative Committee Subcommittee
• Chosun Ilbo: Small & Venture Companies Also Not Exempt from 'Mandatory Treasury Share Cancellation'

Image Source

No images secured - published without replacement images as official images related to the bill's passage could not be found. Legislative Committee meeting scenes or stock market-related illustrations would be appropriate.