KoreaToday Debate Heats Up Over Bourse Operator
Should Korea Exchange Be Under Government Control?
By Yoon Ja-young
Staff Reporter
``The Internationale,'' or the anthem of international socialism, is being played in the lobby of the Korea Exchange (KRX), the country's stock market operator. The KRX labor union installed a tent there for a sit-in. What happened to the bourse operator, the symbol of the financial industry? Why are white-collar workers who have been envied for their amazingly huge salaries ― as much as over 100 million won a year on average ― job security and welfare programs protesting?
KRX to Be Under Government Supervision
The Board of Audit and Inspection (BAI) announced in September that the country's bourse operator should be designated as a public institution under government control, citing lax management. The government designates public institutions each year from a zero base. Those designated as public institutions get subject to government regulation in terms of budget and human resources.
The government points out that the bourse operator is de facto a public institution, making over 70 percent of its income from its monopolistic stock and bond trading facilities. Despite this status, it was without outside control, which led to reckless management. While the principle of competition drove workers in other sectors to continuously struggle for survival, the KRX came to be dubbed as a workplace that even God would love to work in.
Policymakers plan to strengthen the KRX as a ``public service'' by designating it a public institution, putting it under regular oversight of the Board of Audit and Inspection like other state-run enterprises.
Problems Lie Ahead
The bourse operator is protesting fiercely. KRX Chairman & CEO Lee Jung-hwan said in a press briefing last week that it would take legal action. ``Designating KRX as a public institution could impair the right of its shareholders, the securities companies. We are considering taking legal action, including a petition with the Constitutional Court to protect shareholders' rights,'' Lee said.
Designating the KRX as a public institution is not without problems. The government had already privatized the bourse operator back in 1988. And now, it is trying to go back, which is ridiculous. It is also a strange tactic when considering that privatization has been the motto of the President Lee Myung-bak administration that aims at a small government.
``KRX is a private corporation whose stocks are owned by the private sector. It can't be designated as a public institution,'' said Hanyang University professor Jung Ho-kyoung.
The law professor cited Constitution Article 126, which states, ``Private enterprises shall not be nationalized nor transferred to ownership by a local government, nor shall their management be controlled or administered by the State, except in cases as prescribed by law to meet urgent necessities of national defense or the national economy,'' and Article 23-(1), which notes, ``The right of property of all citizens shall be guaranteed. The contents and limitations thereof shall be determined by law.'' Law experts point out that it might constitute infringement of shareholders' rights as the government is trying to make a body in which it doesn't have any stake a public institution.
However, the BAI claims that this isn't against the Constitution. Since it makes over 50 percent of its income from a monopolistic business, the KRX satisfies the condition set in law regarding the management of a public institution. It determined that among the 463.5 billion won average annual income of the Korea Exchange from 2005 to 2007, 327 billion won came from monopolistic stock and bonds trade facilities.
Some financial market players say that a ``public institution'' doesn't suit the capital market. Under the government control, KRX may become conservative and protective in management, which could be a hurdle for coping with the fierce competition in the global capital market. Its business plans will be reevaluated when it becomes designated as a public institution, which means quick decision making is not likely.
KRX says it is against global standards. Among the Organization for Economic Cooperation and Development (OECD) member countries no country except Slovakia has categorized their stock market operator as a public organization. In the case of Slovakia, the government holds a 74 percent stake in the bourse operator.
Complaints Against Bourse Operator
Despite the strong rationale of the KRX against the designation, not a few in the financial market are looking at it coldly ― the bourse operator is just trying to protect its interest.
They point out that KRX is enjoying the fruits of a monopoly while being reluctant to be under regulation. Monopolizing the commission from securities trade, the business is like a golden goose. Without any outside force to regulate them, the organization has been extravagant in salaries and welfare payments for its employees.
``They are doing too little a job for what they make. They make money thanks to us, but they are above us,'' said an employee at a securities company in charge of investment banking.
KRX is owned by securities companies and futures companies, but these shareholders aren't exercising any rights at all. On the contrary, the bourse operator regulates the shareholders.
Those in government also point out that the labor union is too strong.
Competition Should Be the Answer
The Korea Exchange is the 12th largest bourse operator in the world in terms of transactions. On average, 859 million shares are traded there daily, with stock transactions amounting to 6.4 trillion won while futures and options totaled 34.8 trillion won.
The giant bourse operator is expected to take a huge role in the government's plan of becoming a regional financial hub. The country, which has been resorting to the manufacturing industry, is trying to find a new growth engine in the financial industry.
The KRX has made some achievements in its move to go global. It supported opening of the Vietnamese bourse, and is also working on projects to open bourses in Cambodia and Laos. It is exporting trading systems to Malaysia, Mongolia and Vietnam. ``The aim of KRX is to make a step forward toward becoming a first-class stock market operator leading the global capital market,'' the KRX CEO said.
However, the globalization is too slow in a progress. It has three foreign companies listed on the bourse, and another three are waiting, but the figure is still too small and it has a long way to go.
Lawmakers are suggesting adopting competition among bourse operators, since negligence comes from the monopolistic status of KRX. It needs a competitor. The National Policy Committee at the National Assembly is planning to discuss allowing multiple stock market operators during an extraordinary session in April.
Listing also could be an answer, then it would be controlled by the market.