South Korea's Financial Services Commission (FSC) and Korea Exchange (KRX) announced dual-listing guidelines on the 6th, requiring parent companies on KOSPI and KOSDAQ markets to obtain shareholder consent through a '3% rule' process when listing physically spun-off subsidiaries. The KONEX market is exempt from these regulations. The exemption aims to revive the KONEX market, where new listings dropped from 14 companies in 2022 and 2023 to just one this year as of the 4th of last month, with total listed companies falling 30.5% to 107 from 154 in 2017. Industry observers warn the exemption may create regulatory arbitrage opportunities, allowing companies to bypass stricter KOSPI/KOSDAQ requirements by routing subsidiaries through KONEX.
FSC Imposes Five Mandatory Duties on Parent Companies for Dual Listings
The guidelines restructure dual-listing approval processes to prioritize parent company shareholder protection. Parent companies listed on KOSPI or KOSDAQ must now fulfill five mandatory duties when seeking to dual-list subsidiaries: assess the impact on parent company shareholders, establish shareholder protection measures, confirm shareholder communication and consent, conduct final board resolutions and notify subsidiaries, and disclose detailed information publicly. Board resolutions require prior review and approval by an independent special committee composed of outside directors and external experts. Subsidiaries spun off through physical division that fail to obtain parent company shareholder consent will be deemed non-compliant with listing requirements, effectively blocking the listing. Subsidiaries demonstrating excessive operational or management dependence on parent companies — including sales or procurement dependency exceeding 50% or subordinate personnel and decision-making structures — will also fail to meet listing thresholds.
KONEX Market Exempted from Dual-Listing Rules Amid Sharp Decline in New Listings
The guidelines fully exempt the KONEX market from dual-listing regulations. Subsidiaries of KONEX-listed parent companies seeking listings, and subsidiaries of KOSPI or KOSDAQ-listed parent companies seeking KONEX listings, are both excluded from the five-duty framework. This exemption reflects the KONEX market's severe contraction, with new listings falling from 14 in both 2022 and 2023 to 6 in 2024, 4 last year, and only one this year as of the 4th of last month — E-TECH M, which listed in the fourth month. Total KONEX-listed companies declined 30.5% from 154 in 2017 to 107 currently. The government is implementing revival measures, including 70% subsidies for external audit costs and designated advisory fees, and expanding KONEX investment funds to over 200 billion won, effective from last month.
Industry Raises Concerns Over Regulatory Arbitrage Through KONEX Route
Capital market participants warn the KONEX exemption may enable regulatory circumvention. KOSPI and KOSDAQ-listed companies can list new affiliates or business units on KONEX instead of KOSDAQ, avoiding the five-duty framework and strict investor protection reviews. Companies could subsequently transfer subsidiaries from KONEX to KOSDAQ after initial stabilization, creating regulatory gaps. Conversely, companies maintaining parent entities on KONEX while directly listing promising subsidiaries on KOSDAQ also evade regulation. This structure allows firms blocked by shareholder consent and independence reviews for direct KOSDAQ listings to use KONEX as a governance bypass. An industry official stated, "Given KONEX's very small scale and trading volume, whether companies will have listing demand remains to be seen," adding, "Detailed supplementary measures must be prepared to identify regulatory evasion during future transfer listings or equity adjustment processes."
FAQ
What did South Korea's FSC announce on the 6th regarding dual listings?
The FSC and KRX announced guidelines requiring KOSPI and KOSDAQ parent companies to obtain shareholder consent through a '3% rule' process when dual-listing physically spun-off subsidiaries, while fully exempting the KONEX market from these requirements.
Why is the KONEX market exempt from the dual-listing rules?
The exemption aims to revive the KONEX market, which experienced a sharp decline in new listings from 14 companies in 2022 and 2023 to only one this year as of the 4th of last month, with total listed companies falling 30.5% to 107 from 154 in 2017. The government is also providing 70% subsidies for audit costs and expanding investment funds to over 200 billion won.
