SEOUL-- South Korea's financial watchdog said Friday it will strengthen penalties on violators of the so-called 5 percent rule concerning the acquisition of listed firms' shares.

The country's capital market law requires investors who buy 5 percent or more of a listed company's shares to file a report on the purpose of the purchase and status of their stock holdings with the Financial Services Commission (FSC) and the Korea Exchange.

They are also obliged to report within five days a change of 1 percent or more in holdings or any changes in the purpose or major contract items after the acquisition.

The FSC said it will revise the law and its enforcement decrees to raise the ceiling on violators to one-ten-thousandth of a listed firm's market capitalization.

Currently, violators of the rule should pay one-hundred-thousandth of the market value as fines.

After the amendment of the law and related rules, the FSC said, fines on violators would be increased to 15 million won (US$12,940) from the average 370,000 won over the past three years.

The 5 percent rule is designed to protect investors, boost market transparency and allow existing majority shareholders or management time to take defensive measures against hostile takeovers.

In addition, the revised rules would toughen rules on regulatory filings concerning the issuance of convertible bonds or bonds with warrants through private placement.

Companies would also be required to file business reports when they float perpetual bonds, and fines on violators would be raised drastically.

Source: Yonhap News Agency