The Financial Services Commission and the Korea Exchange jointly held a policy seminar on improving rules on split listing on April 16. The government had previously announced a plan in March this year to prohibit split listing of parent and subsidiary companies in principle as part of broader efforts to seek improvements in the domestic capital markets. In this regard, today’s seminar will help the authorities to gather diverse opinions and advice on overall policy directions and specific regulatory designs from investors and experts from various backgrounds. At the beginning of the seminar, FSC Chairman Lee Eog-weon delivered congratulatory remarks speaking on the importance of seeking ways to further strengthen the fiduciary duty of corporate executives and boards in the best interests of ordinary shareholders.
A Summary of Remarks by FSC Chairman
The practice of split listing of parent and subsidiary companies has often been used to expand the business operations and affiliates of corporate entities, while controlling shareholders continue to maintain the practical ownership rights. In this process, ordinary shareholders were left out from sharing the profit of growth achieved by the subsidiary company and had to bear the cost of discounts in stock prices. To address this problem and to bring more fairness and reasonableness to the domestic capital markets, it is necessary to gather diverse opinions and advice on ways to effectively tackle this problem.
In this regard, financial authorities will seek to upgrade relevant rules and bolster the screening process to make sure to draw a clear line between the split listings that lead to an asymmetrical profit structure for only a few and the ones that are deemed to be fair and that can create new value for ordinary shareholders. Additionally, the rules change will require the parent company’s board to examine the impact of split listing on its shareholders and prepare measures to ensure shareholder protection to have continuous engagement and communication with shareholders. Specific details and procedures will be drawn up after collecting sufficient opinions, and once the rules change takes effect, authorities will prepare best practice guidelines and continue to work on making upgrades to help make the rules and procedures more concrete and predictable.
The recently revised Commercial Act has laid groundwork for changes in our capital markets, and ordinary shareholders are not the silent majority anymore. In this regard, the measures to prohibit split listing in principle will help to further strengthen the fiduciary duty of corporate executives and boards in the best interests of ordinary shareholders.
Further Plan
The FSC and the KRX plan to draw up a revision proposal in April based on the opinions gathered at today’s seminar. The revision process will be completed within the first half of this year to facilitate the implementation of new rules starting from as early as July this year.
* Please refer to the attached PDF for details.