KRX seeking leap forward through structural reforms
By Yoon Ja-young
Amid intensifying competition among global bourse operators, the Korea Exchange (KRX) is planning for structural reforms. Without passage of a revision bill at the National Assembly, however, it fears that it will fall behind its competitors in the global market.
At the core of KRX’s reform plan is transforming itself into a shareholding company and listing itself on the bourse. It hopes to regain dynamism while securing funding for mergers and acquisitions (M&As) in the global bourse-operating industry through an initial public offering (IPO). Currently, the KRX is in charge of the KOSPI and Kosdaq as well as derivatives markets. By transforming into a shareholding company and subsidiaries, it hopes to introduce competition among subsidiaries. As each of them will develop new products and differentiate their services, as well as attract businesses to list shares on their bourses, it hopes the capital market will see a notable improvement.
Doors will open wider for around 10,000 businesses that meet the conditions for IPO as well as startup companies. Startups and other small innovative companies are regarded as new growth engines for the economy while the manufacturing industry, the country’s traditional sustaining pillar, loses steam. However, the venture capital market is lagging behind, failing to support these firms. Structural reform of the bourse is thus crucial.
The country’s capital market is facing slower growth, amid the economic slowdown and the aging population. It is also witnessing an outflow of liquidity, with both institutional investors and individual investors turning their eyes to overseas markets. KRX has thus been seeking to enhance the competitive edge of the market as well as regain dynamism through structural reforms of the stock exchange, which is the core infrastructure of the capital market.
If the 19th National Assembly fails to pass the revision of the related law, however, the bourse will need another two to three years to make structural reforms.
The Seoul bourse is already behind major overseas bourse operators which have been actively engaged in structural reforms. Bourse operators such as the NYSE, Nasdaq, London Stock Exchange and Deutsche Borse, have already completed their transformations into the shareholding company system as well as IPOs. They have been actively advancing into new businesses as well as engaging in global M&A activities. Asia’s leading bourses such as Hong Kong, Singapore and Japan, as well as new markets such as the Philippines and Malaysia, are no exception. Hong Kong’s stock market operator, for instance, completed its transition to the shareholding system and issued an IPO in 2000, and has succeeded in M&A deals such as the acquisition of the London Metal Exchange in 2012.
Analysts point out that the whole capital market may lag behind without structural reforms to KRX, as it will hinder funding for businesses, pulling down the overall effectiveness of the economy.