Kim So-young, Vice Chairperson, "Sincerity Greater Than Any Previous Government, Actively Promoting Capital Market Advancement"

Financial Services Commission Holds Key Policy Achievements Meeting in Capital Market Sector
"Resolving Korea Discount to Improve Economic Structure"
Prioritizing National Tasks to Restore Investor Confidence

Kim So-young, Vice Chairman of the Financial Services Commission, is presenting the 'Key Policy Achievements in the Capital Market Sector and Plans for the Second Half of the Year' on the morning of the 17th at the Gwanghwamun Government Seoul Office.

"We are making sincere efforts for the development of the capital market more than any previous government. Resolving the Korea discount is an effort to improve the structure of our economy. If we enhance the capital market returns, it will attract many investments, leading to a virtuous cycle of growth and reinvestment, which in turn will improve the economic structure to overcome low growth.

The Financial Services Commission (FSC) announced that despite difficult economic and financial conditions in the first half of this year, tangible results are being produced through active cooperation with related agencies and the industry regarding major policy achievements in the capital market sector.

Kim So-young, Vice Chairman of the FSC, held a press briefing on the morning of the 17th at the Gwanghwamun Government Seoul Office to announce the 'Major Policy Achievements in the Capital Market Sector and Plans for the Second Half of the Year.' She stated, "This government has included more capital market-related tasks in its national agenda than any previous administration and is actively promoting efforts for the development of the capital market. We are boldly resolving long-neglected or insufficiently improved issues such as inadequate protection of common shareholders, entrenched outdated regulations, and systems that do not support innovation efforts in the capital market, thereby addressing the factors causing the Korea discount one by one." She particularly evaluated that progress has been made by focusing on three key directions: ▲restoring investor confidence ▲strengthening the role of the capital market ▲financial stability.

Securities Crime as a 'Core National Task'

The FSC prioritized national tasks to restore investor confidence, which is the foundation of the capital market, and first focused on improving systems to robustly protect the rights of common shareholders. Given the complex interests among companies, major shareholders, and common shareholders, the FSC sought reasonable measures through broad opinion gathering such as seminars and activated the 'triple common shareholder protection mechanism' at the end of last year to respond to spin-off and split listings that exclude common shareholders. As a result, companies themselves have begun to prepare shareholder protection measures (e.g., dividend in kind of new shares of subsidiaries), communicate with shareholders, and seek their consent, indicating behavioral changes, according to the FSC's assessment.

Vice Chairman Kim explained, "We established the 'Insider Trading Pre-Disclosure System' to prevent common shareholders from suffering unforeseen damages due to stock transactions by major shareholders and executives. Additionally, we introduced the 'Mandatory Tender Offer System' to ensure that only major shareholders do not receive control premiums during M&A, preventing the exclusion of common shareholders."

Strengthening the response to securities crimes remains a core national task. The biggest achievement was the passage of the Capital Market Act amendment in June, which includes the introduction of fines and the legalization of unfair profit calculation methods to significantly enhance sanctions against unfair trading. The FSC plans to announce the revised enforcement decree detailing the unfair profit calculation methods in the third quarter and aims for smooth implementation in January next year.

Measures to diversify sanctions, such as expelling unfair traders from the capital market, have also been established. Violations of short-selling regulations are being punished more strictly than before, including the first imposition of fines and public disclosure of offenders.

Various institutional improvements have been pursued to restore market order and establish discipline, creating a fair market that investors can trust. For example, the FSC expanded the designation of overheated short-selling stocks and imposed reporting obligations on short-selling activities exceeding 90 days to supplement the short-selling system and alleviate distrust among individual investors.

Improvements to block fictitious subscriptions that hinder the healthy development of the initial public offering (IPO) market have also been implemented. Vice Chairman Kim evaluated, "We have significantly improved the public offering allocation process, including demand forecasting, and improved the opening price system, so the phenomenon of trading being halted immediately at the upper limit price upon listing has not yet occurred."

Regarding recent unfair trading incidents revealing vulnerabilities in the Contract for Difference (CFD) system, immediate corrective measures have been completed to strengthen protection for individual professional investors and eliminate regulatory arbitrage, with implementation scheduled for September. For so-called 'fractional investment,' which had gaps in investor protection due to the lack of a proper regulatory framework, the FSC is establishing regulations to allow the fractional investment market to grow healthily within the institutional framework.

Improving Accessibility for Foreign Investors

The FSC evaluated that in the first half of this year, it laid the institutional foundation focusing on aligning the capital market system with the international standards befitting our economy's status. A major achievement was the decision to abolish the foreigner ID system after about 30 years of operation. From the end of the year, foreign investors will be able to open accounts and invest in domestic stocks directly without going through authorities, significantly improving foreign investors' accessibility to our stock market. Furthermore, with the first phase of mandatory English disclosure also set to be implemented next year, most of the issues that had been criticized for not meeting the standards of advanced major countries have been resolved. Additionally, by rationalizing dividend procedures to allow investors to know how much dividend they will receive before investing, the FSC expects a virtuous cycle of dividend-focused long-term investment and increased dividend payout ratios, improving the issue of 'blind dividends.'

These measures are aimed at inclusion in the Morgan Stanley Capital International (MSCI) Developed Markets (DM) Index. The FSC is pursuing institutional improvements to address market accessibility issues pointed out by MSCI. To be included in the MSCI Developed Markets Index, a country must remain on the watchlist for more than one year, but the Korean stock market has not been included in the candidate list this year either. Vice Chairman Kim stated, "Our goal is to promote capital market advancement while fostering real economic growth, so inclusion in the MSCI Developed Markets Index is not a direct objective. However, the current progress is not bad, and we are showing changes. We will also explain this to MSCI next month."

Policy efforts to enhance innovation and competition in the financial investment industry in line with emerging technologies and changing demands are also underway. A notable achievement is the preparation of regulatory measures to officially permit 'Security Token Offering (STO)' through three institutional improvements within the investor protection framework of the capital market system. This is the first institutional adoption of distributed ledger technology in Korea and a very pioneering move globally, expected to lead the STO market, which has yet to establish global standards.

The alternative trading system (ATS), which will break the 70-year monopoly of the exchange, received preliminary approval in July and is preparing to operate. The introduction of the Business Development Company (BDC), a new venture capital vehicle, is also underway.

Additionally, the FSC has prepared and implemented measures to reduce the burden on small and medium-sized enterprises so that accounting standards, the language of the capital market, can provide useful information to investors with reasonable corporate burdens. The auditor designation system has been improved, and specific accounting guidelines for virtual assets are being developed and undergoing public consultation to keep pace with market changes.

Proactive Risk Management

The FSC evaluated that in the first half of the year, it proactively improved risk management by reflecting experiences from responding to financial instability. Due to market instability such as the Legoland incident last year, liquidity risks related to real estate project financing (PF) of some securities firms emerged. However, timely activation of market stabilization measures, including repurchase agreement (RP) and commercial paper (CP) purchases through Korea Securities Finance and the Korea Development Bank, the 1.8 trillion won 'Securities Firm Guaranteed Asset-Backed Commercial Paper (ABCP) Purchase Program,' and easing of securities firms' ABCP refinancing demand through authoritative interpretations, enabled a quick recovery of stability.

In the first half of this year, the FSC has encouraged converting real estate PF-ABCP guarantees into loans without maturity mismatches and prompt write-offs of non-performing loans, while extending existing market stabilization measures considering domestic and international potential risks.

To prevent excessive fund transfers among financial institutions in year-end retirement pensions, the FSC actively recommended installment payments of retirement pension contributions and diversification of maturities for large retirement pension providers. Various institutional improvements to prevent excessive interest rate competition among financial institutions that could disrupt the market will also be implemented soon.

Vice Chairman Kim emphasized, "In the second half of the year, we will maintain the policy directions of restoring investor confidence, strengthening the role of the capital market, and financial stability, and complete the policies announced so far. The government is sincere about advancing the capital market and will continue institutional improvements centered on the three pillars to ensure that general investors can fully enjoy the fruits of economic growth."

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