‘Ban in principle’ rule to take effect by June with strict exceptions
South Korea’s financial authorities are set to implement stricter rules for dual listings, adopting a “ban in principle, exceptions allowed” approach to enhance investor protection and scrutiny.
The Korea Exchange (KRX) on Thursday revealed new screening criteria, indicating that subsidiary listings will be rejected if companies fail to satisfy any of three essential conditions: operational independence, management independence, and robust investor protection.
“The rule is a ban in principle, with exceptions allowed only under strict conditions,” Lim Heung-taek, executive director of the Kospi Market at KRX, stated at a seminar in Seoul.
This initiative follows a policy announced last month by the Financial Services Commission (FSC), specifically aimed at curbing dual listings that could dilute parent company shareholder value.
FSC Chairman Lee Eok-won emphasized that regulators will carefully distinguish between dual listings that primarily benefit a small group of shareholders and those that genuinely create value for all investors.
The KRX plans to revise its listing and disclosure rules by June to formally integrate this new framework.
Under the proposed framework, parent company boards will be required to assess the potential impact on shareholders and implement comprehensive protection measures prior to pursuing any subsidiary listing. Reviews will particularly scrutinize whether subsidiaries operate with sufficient independence, maintain separate governance structures, and demonstrate a clear, justifiable need for their own listing.
Dual listings are relatively common in Korea. According to Korea University professor Na Hyun-seung, they account for approximately 18 percent of listed firms, with roughly 20 percent of new listings involving subsidiaries.
“While widely used for fundraising, dual listings can lead to shareholder dilution and significant conflicts of interest,” Na explained.
Some market participants are advocating for even stricter safeguards. Lee Chang-hwan, founder of Align Partners Capital Management, urged detailed disclosure requirements and mandatory approval from a majority of minority shareholders.
Conversely, others warned against potential overregulation. Bang Han-chul of Korea Investment & Securities noted that overly rigid rules could constrain crucial fundraising efforts and impede corporate restructuring, while Ahn Sang-jun, vice chairman of the Korea Venture Capital Association, cautioned that tighter regulations might weaken the burgeoning startup ecosystem.
Kim Chun of the Korea Listed Companies Association commented that the ultimate impact will largely depend on how broadly regulators interpret the scope of “exceptions” within the new dual listing policy.
Authorities aim to finalize these critical rule changes by June following further public consultations.
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