[Asia Exclusive] Son Byung-du: "We Will Propel the Exchange Forward Through Business Diversification"

Son Byung-du, Chairman of the Korea Exchange, is being interviewed on the 8th at the Korea Exchange in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

[Interview = Jeon Pil-su, Head of Capital Markets Department, Asia Economy; Summary = Song Hwa-jung, Reporter] "The Korea Exchange is a company with enormous potential, possessing vast data and platforms. We will realize this potential through business diversification and align with the dynamism of the capital market."

In an interview with Asia Economy held on the 8th at the Korea Exchange in Yeongdeungpo-gu, Seoul, Chairman Son Byung-doo spoke about the future development direction of the Exchange. He said, "Recently, overseas exchanges have been moving towards business diversification and informatization. Currently, 70% of our revenue comes from trading fees, but we plan to break away from this excessive dependence on trading fees and transform in line with global trends."

True to his words about aligning with the dynamism of the capital market, Chairman Son has spent a dynamic 120 days since his inauguration. Emphasizing that he would be a responsible guardian, a partner communicating with the market, and a challenger unafraid of innovation, he has taken the lead in putting these into practice. At the end of last month, marking his 100th day in office, he announced the '5 Core Strategies and 20 Implementation Tasks,' demonstrating a swift response to recent major market issues. He also engaged in open communication with Exchange employees through the 'Communication Concert with the CEO.' He plans to take on challenges for innovation, including exploring business diversification to strengthen the Exchange's competitiveness.

He also plans to actively attract listings of excellent domestic unicorn companies. Chairman Son said, "Many good companies are emerging domestically for listing. Our Exchange has definite strengths in listing management and post-listing supervision. We will actively promote these aspects to enable good companies to list."

Below is a Q&A with Chairman Son.

- It has been over 100 days since you took office as Chairman of the Exchange. How do you feel?

▲ From the outside, I thought the capital market was dynamic, so the Exchange would be dynamic as well, but after coming inside, it felt stable and conservative. The employees have excellent capabilities, and I am thinking about how to enable them to demonstrate these capabilities to align with the dynamism of the capital market.

- What is your view on the introduction of Alternative Trading Systems (ATS)?

▲ Recently, as trading volume has increased, the movement to introduce ATS seems to be accelerating. It had been quiet for a while, but recently it has gained momentum. Even if ATS is introduced, it will only handle some functions like trading, so I don't think it will have a big impact. The Exchange performs important functions such as listings and market surveillance. I expect that the establishment of ATS will create a healthy competitive environment.

- I understand that a comprehensive inspection of the Exchange is planned this year for the first time in 11 years.

▲ Inspections are conducted as required under the Capital Markets Act, and it is time to undergo one. I understand that the Financial Services Commission and the Financial Supervisory Service are currently discussing the timing and scope of the inspection. Since this is the first inspection in 11 years, I believe it will be an opportunity to identify and improve issues that have not been seen so far. However, I am concerned that the inspection might hinder changes. I hope the inspection can proceed in a way that seeks development together.

- After Coupang's listing in the U.S., there is great interest in unicorn companies listing overseas. What is the Exchange's countermeasure?

▲ It has been 5 to 6 years since we revised the listing criteria to focus on growth, and we have been continuously improving procedures for listing growth companies. Recently, we introduced a sole requirement of a KOSPI market capitalization of 1 trillion won. Overseas listings involve many factors to consider, such as accounting and legal costs, which pose risks. We plan to do our best to attract excellent domestic companies by clearly communicating these aspects.

- What are the strengths of the Korea Exchange compared to overseas listings?

▲ We have strengths in market conditions and services. The fact that we can closely manage listings and post-listing supervision is a definite advantage. Such services are not easily available in overseas markets. We are also upgrading services for listings in cooperation with various associations. Except for the increasing scale of funds that can be attracted from overseas, I believe domestic listing is advantageous unless the company is in a special situation.

- Recently, there has been a renewed cryptocurrency boom. What is the Exchange's perspective?

▲ We are closely observing environmental changes. Accordingly, we are examining whether we need to change our policy. However, we cannot go against the stance of the authorities. Until now, there has been a negative perception of cryptocurrencies, but changes are emerging recently. We plan to present these changes to the government. Recently, overseas, cryptocurrency-related Exchange-Traded Funds (ETFs) and futures have appeared, but overall, foreign markets have not yet widely adopted them. We should not fall behind, but we will follow the government's lead on the major direction.

Son Byung-doo, Chairman of the Korea Exchange, is being interviewed on the 8th at the Korea Exchange in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

- There is criticism that the index industry classification is too outdated to reflect current industry trends.

▲ I think there is merit to that. For example, ESG (Environmental, Social, Governance), which has become a recent issue, should be developed into an important sector in the future, but if you look at the composition of ESG ETFs so far, there are no distinctive features. There has been a lot of talk but no detailed development. After taking office, I suggested to employees to create investment indicators such as Price-to-Earnings Ratio (PER) and Price-to-Book Ratio (PBR).

- How do you plan to respond to ESG?

▲ First, as interest in carbon emission rights increases, I think preparation is necessary. Currently, only companies demanding emission rights participate in trading, but abroad, securities firms and financial companies also participate as the market opens. The 'E' part can be clearly defined and evaluated, but 'S' and 'G' are actually more difficult. Regarding this, we are considering introducing gender equality or women's indices. In the long term, since the utilization of women seems to help corporate growth, it would be good to create products by gathering companies with a high ratio of female board members or excellent gender equality.

- There has been ongoing talk about inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets Index.

▲ It would be good to be included, but it is difficult to give up the foreign exchange issues required for inclusion. Since Korea experienced a foreign exchange crisis in the past, the foreign exchange authorities are sensitive about this. If the benefits of inclusion in the MSCI Developed Markets Index outweigh the concerns, we should seriously consider inclusion. However, since some capital outflow is expected when leaving the emerging market, it is ultimately a question of whether it is the tail of the lizard or the head of the snake.

- Last year's performance was good. How do you forecast this year?

▲ In terms of net income, 2010 was the highest, and last year was the second highest ever. Since trading fees were waived for three months from September to December last year, actual performance may have exceeded 2010. Operating profit was highest in 2007, and last year was the second highest. This year, trading volume increased significantly at the beginning of the year, and the stock market has recently been on the rise again, so we expect to achieve favorable results.

- What is the future development direction of the Exchange?

▲ Recently, advanced exchanges have been focusing on business diversification and informatization. We also need to change accordingly. Nearly 70% of the Exchange's revenue comes from trading fees. The New York Stock Exchange and NASDAQ are more diversified than us. We plan to break away from the structure overly dependent on trading fees and diversify into information business, index business, and so on. The Exchange is a company that holds enormous data and provides platforms. Especially, the information business accounts for a significant portion of revenue and is a field we need to grow. Business diversification can be done within the organization or by growing subsidiaries as separate corporations.

- You emphasized strengthening the core competencies of the organization.

▲ I think we need a businessperson-like attitude to match the dynamism of the capital market. I hope employees work enthusiastically, communicate externally a lot, visit directly if necessary like general companies, and cooperate well between departments. To make the entire organization capable of working in the aging era, we plan to revise systems such as wage peak and honorary retirement. We will strive to build a smart work environment.

About Chairman Son Byung-doo…

▲ Born in 1964 ▲ Graduated from Inchang High School, Seoul ▲ Bachelor’s in International Economics, Seoul National University ▲ Master’s from Graduate School of Public Administration, Seoul National University ▲ Ph.D. in Economics, Brown University, USA ▲ Passed the 33rd Administrative Examination ▲ Senior Economist at the World Bank ▲ Director of International Organizations, Foreign Currency Fund, and G20 Planning Coordination Team at Ministry of Strategy and Finance ▲ Standing Commissioner, Secretary-General, and Vice Chairman at Financial Services Commission ▲ 7th Chairman of Korea Exchange

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