The domestic stock market, which was on the verge of reaching the 5,000-point mark, is now threatened as it faces volatility, with the KOSDAQ index dropping below 700. The expectation for a rise in indices has been met with challenges, leaving the restoration of market trust and structural improvement as ongoing tasks.
In this context, President Lee Jae-myung chaired a policy meeting on November 13 at the Korea Exchange in Yeouido, Seoul, under the theme "A Trusted Capital Market: Seeking Answers from the Field," where he proposed three directions for normalization. He emphasized the need to block practices that artificially lower corporate value, expedite the exit of failing companies from the market, and respond strictly to unfair trading by mobilizing investigative resources.
1. Stronger Laws Against Stock Price Manipulation and Promoting Hostile M&A for Governance Improvement
The first task is to prevent the pursuit of personal interests by controlling shareholders that undermines corporate value. The issue stems from decision-making practices centered around controlling shareholders, which often disregard minority shareholders. Discussions on improving regulations to prevent the artificial suppression of stock prices and corporate value are expected to gain momentum.
President Lee particularly highlighted the importance of promoting hostile mergers and acquisitions (M&A) as a means to rectify abnormal governance structures. Hostile M&A involves external companies or investors acquiring shares without the consent of existing management or major shareholders. He stated, "Rather than creating something very rational and ideal, it is more important to activate hostile M&A to break this abnormal structure." This underscores the need to create an environment where competition for management rights is possible before institutional reforms.
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Voices from the field also called for strengthening the role of institutional investors and shareholder engagement. Lee Sung-won, CEO of Truston Asset Management, pointed out that many companies with low price-to-book ratios (PBR) are not on the radar of institutional investors, which hampers market oversight. He explained that merely establishing a system for exercising shareholder rights is insufficient; the investment base must be broadened to allow institutional investors to participate in corporate decision-making as actual shareholders.
2. Maintaining the Speed of KOSDAQ Delistings and Enhancing Market Trust through Mandatory IR
The second focus is on the delisting of failing companies in the KOSDAQ market and expanding information disclosure. President Lee addressed the issue of companies that enjoy the benefits of being listed while effectively blocking stock circulation and competition for management rights. He stated that companies with excessively high major shareholder ownership, resulting in minimal trading of their stocks and difficulty in management competition, should be scrutinized for their continued listing.
However, concerns were raised that relying solely on quantitative criteria such as market capitalization could stifle growth potential for some companies. Song Byeong-jun, chairman of the Venture Business Association, mentioned that over 300 companies fall under the delisting criteria based on a 30 billion won market capitalization threshold. He expressed that these companies are not engaging in stock price manipulation but are genuinely struggling to see their stock prices rise despite announcing dividends and profits. He urged for a more refined approach to ensure that growth companies are not pushed out of the market solely due to low stock prices or market capitalization.
There were also calls to enhance information disclosure and investor communication among listed companies. Lee Geon-jae, head of the KOSDAQ Research Center at IBK Investment & Securities, noted that only about 33% of KOSPI-listed companies and 26% of KOSDAQ-listed companies had disclosed their investor relations (IR) plans for 2025. This contrasts sharply with about 80% of U.S. companies that communicate with investors through earnings announcements and conference calls. He stated, "If these aspects are not improved, calling for trust in KOSDAQ will ultimately be an empty cry."
The exchange is also considering expanding IR initiatives. Currently, there are conditions for mandatory IR for a certain period after listing, which may be extended to the entire listing period, requiring at least one IR session annually. President Lee suggested that the provision of foreign language IR materials, currently applied to KOSPI-listed companies, should also be extended to KOSDAQ to reduce information asymmetry in the market.
3. Strict Measures Against Unfair Practices to Establish Market Order
The third task is to eradicate unfair trading practices. Repeated actions that undermine market order, such as stock manipulation and price rigging, make it difficult to restore investor trust through improvements in corporate value or listing systems alone. There is a need to enhance the effectiveness of detecting and punishing unfair practices alongside institutional reforms.
During the meeting, President Lee made it clear that he is committed to a strict response to unfair trading. He directly checked the current status of personnel at the Financial Supervisory Service (FSS), which reported that about 60 personnel are operating in a joint response team. In response, President Lee emphasized the need to increase both authority and personnel to strengthen supervisory capabilities.
In his concluding remarks, he acknowledged that the issue of market transparency has not been fully resolved. He stated, "While we are recovering some trust through strong enforcement and penalties, it is still difficult to say that it is perfect. There still seems to be a lot of distrust remaining."
Concerns were also raised about potential unfair practices that could arise during the implementation of new regulations. Kim Ji-pyeong, a lawyer at Kim & Chang, highlighted that significant unfair trading practices or price competition could occur during the mandatory tender offer process, emphasizing the importance of regulatory improvements in this area. The mandatory tender offer system aims to ensure that general shareholders have the opportunity to sell their shares during changes in management rights. However, it was pointed out that regulatory measures must be established to prevent unfair trading or excessive price competition during the actual tender offer process.
* This article has been translated by AI.
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