Market Cap 30% Cap, Selling Off Without Even Trying Once

Exchange Moves to Effectively Abolish 30% Market Cap Cap System
Final Decision at Index Committee This Week... Results Announced Early Next Week
System Introduced in June Last Year but Never Applied Before Disappearing

Kim Ki-nam, Vice Chairman and CEO of Samsung Electronics, is speaking at the 51st Annual General Meeting of Shareholders of Samsung Electronics held at the Suwon Convention Center in Yeongtong-gu, Suwon-si, Gyeonggi-do on the morning of the 18th. Photo by Kang Jin-hyung, Suwon aymsdream@

[Asia Economy Reporter Minwoo Lee] The Korea Exchange has effectively begun the process of abolishing the regulation that limits the market capitalization of specific stocks within the KOSPI200 to within 30% (the 30% cap system).

On the 23rd, a representative from the Exchange stated, "We have completed gathering industry opinions on the market capitalization weight cap system, which includes the 30% limit on the inclusion ratio of specific stocks within the KOSPI200," adding, "We plan to hold an index committee meeting within this week to decide on the abolition and announce the decision early next week." Since most index users from various sectors, including asset management companies, securities firms, futures investors, and derivatives investors, are reportedly in favor of abolishing the cap system, it appears that the decision to abolish it has been finalized.

As a result, the cap system introduced in June last year is expected to be abolished without ever being applied even once. The system limited the market capitalization weight of a single stock in the KOSPI200, which consists of 200 representative blue-chip stocks in the KOSPI market, to not exceed 30%. However, Samsung Electronics was the only stock subject to this regulation. Until 2018, the weight was around 25%, but after exceeding the cap at 31.17% last December, it has remained above 30% this year as well. As of the day before, the weight was 32.46%. If the 30% cap were applied, domestic and foreign asset management companies operating index funds and exchange-traded funds (ETFs) tracking the KOSPI200 would have to sell Samsung Electronics shares exceeding the 30% limit.

Because of this, the Exchange considered making adjustments before the regular index revision in June but postponed applying the cap system to avoid market shocks. Subsequently, with the revision of the Enforcement Decree of the Capital Markets Act and other regulations starting from the 1st of this month, the rule preventing a specific stock from exceeding 30% of the assets under management within a fund was removed, prompting the Exchange to begin reviewing the abolition of the cap system. However, since the cap system is still in operation in overseas markets such as the US and Europe, the Exchange plans to calculate both domestic indices without the cap system and overseas indices with the cap system in parallel. Given that caps vary from 15% to 35% depending on the country, multiple indices are expected to be calculated to meet customer demand.

With the abolition of the cap, Samsung Electronics is expected to benefit. Concerns over passive (index-tracking) fund outflows due to the excess cap will be alleviated, potentially creating a positive supply and demand environment.

This content was produced with the assistance of AI translation services.