Exchange Advised to Speed Up Public Offering for Growth

By Park Hyong-ki

Staff Reporter

The Korea Exchange (KRX) should urgently carry out its plan of listing itself on the stock market to counter growing competition among global exchanges.

Cho Sung-hoon, vice president of the Korea Securities Research Institute, said the initial public offering (IPO) of the exchange is a must to further gain a competitive edge and establish ties with worldwide stock market operators.

``Its IPO needs to make headway fast for the exchange to play a hub role in this region,'' Cho said in an interview with The Korea Times.

He regrets to see that the KRX is the only exchange not moving along in this direction, while other exchanges are rigorously expanding through cross-shareholdings or mergers and acquisitions.

``A seismic shift has been occurring on the global exchange market over the last two years, ignited by an increasing number of worldwide exchanges transforming through alliances. It seems the KRX is the only one not participating in this movement,'' Cho said.

Last year, the exchange suspended its IPO plan indefinitely due to conflicts of interest with related government agencies, including the Ministry of Strategy and Finance. Initially, the KRX planned to go public by the end of 2007, but disputes erupted over a number of issues including the establishment of the market oversight commission, a KRX unit that monitors and regulates unfair trading practices.

Cho also pointed out that the exchange has to sort out problems regarding its shareholding structure before going public, in addition to resolving issues concerning the oversight commission. Securities companies are the major shareholders, owning about 90 percent stake in the exchange.

Although every global exchange began operations with such structure, most have changed into the likes of a private entity through listing since the early 1990s. They have chosen to overhaul their structures and turn into a profit-making corporation as they realized it will be hard to maintain competitiveness, while brokerages remain as shareholders. The KRX turned into something like a corporation three years ago, but without reforming its structure.

Given that more and more securities firms and investment banks will run an internal trading platform of their own for customers amid increasing cross-border stock transactions, the exchange is likely to face them as competitors.

To this end, Cho said, ``There is a possibility that the exchange will run into conflicts of interest with brokerages over business operations if they still remain as major shareholders. Without structural reforms through an IPO, the exchange can't compete freely at home and abroad.''

Also, he noted that related officials should agree on guaranteeing independence of the market oversight commission for efficient monitoring.

Rich Manpower

Cho emphasized that rich manpower is the key to developing innovative financial products, providing differentiated services and foremost making up for domestic investment companies' poor business records.

``Local securities companies have a poor track record as they relied on the business of stock brokerage over the years,'' he said.

In 2007, only a few Korean companies made it onto the list of top M&A financial advisors, which is part of investment banking (IB) services. Foreign companies such as Citigroup and BNP Paribas took the helm.

The only way for domestic brokerages to effectively challenge global investment banks following capital market deregulation is fostering human resources.

``I'll give you a textbook solution ― they need to nurture or scout talents,'' Cho said. ``Human power is the only reliable resource in finance.''

He projects that domestic companies will run into hardship immediately after deregulation due to a lack of human resources and IB experience.

``You have to remember that this is the first time for domestic companies to be exposed to such deregulation, while foreign companies have worked and expanded under similar deregulatory circumstances,'' Cho said.

phk@koreatimes.co.kr