Korea rules employee share sales after IPO allotment need single account

South Korea's government legislation ministry ruled Wednesday that financial industry employees who sell shares allotted in an initial public offering must do so through their single designated brokerage account, rejecting the view that the sale counts as part of the subscription itself.

The interpretation, issued in response to a civil complaint, turns on the Capital Markets Act, which generally requires employees of financial investment firms to trade financial products for their own account through one brokerage company and one account. The law's enforcement decree allows exceptions, including when an employee subscribes to securities issued or sold through a public offering.

In the case at hand, an employee subscribed to IPO shares through a brokerage firm other than the one he had selected as his sole trading company, opening a new account for the subscription. He received an allotment and wanted to sell the shares through that second firm's account. The ministry said the sale does not fall under the exception.

It reasoned that "subscription" refers to a one-sided, final declaration of intent to conclude a contract — here, an offer to acquire or buy the offered shares. Selling shares already allotted after that subscription is a separate step and cannot be read into the phrase "subscribing to public-offering shares."

The exception exists because some brokerage firms that handle IPO subscriptions are fixed, meaning an employee cannot necessarily subscribe through his existing trading company, the ministry said. That constraint does not carry over to the post-listing sale.

The ministry also noted that the shares need not be sold through the subscription account. Under the Act on Electronic Registration of Stocks and Bonds, the shares can be transferred to the employee's original trading account and sold there.

Employees are still bound by the broader limits in the Capital Markets Act, which are enforced through trade-detail notifications and measures to prevent unfair trading and conflicts of interest, the ministry said. The ruling was issued as case 26-0514.