[Q&A] Son Byung-du: "Ostem Review Delay Due to Late Submission of Documents... Short Selling Must Be Fully Resumed"

Q&A from Son Byung-du, Chairman of Korea Exchange, at New Year Meeting
Need for Investor Protection Measures Regarding Physical Division and Management Stock Option Exercises

Son Byung-doo, Chairman of the Korea Exchange, is announcing this year's business strategy at the New Year's press conference held at the Korea Exchange Seoul Office Conference Hall on the 25th. (Provided by Korea Exchange)

[Asia Economy Reporter Minwoo Lee] Sohn Byung-doo, Chairman of the Korea Exchange, mentioned various goals for this year along with current issues during the New Year's meeting. He explained that the postponement of the substantive review for Osstem Implant's listing eligibility was due to insufficient data submission and that such delays are common. Regarding the controversies surrounding physical division and executive stock option exercises involving LG Chem and Kakao Pay, he stated that various measures will be considered.

On the 25th, Chairman Sohn held a New Year's press briefing at the Korea Exchange headquarters in Yeongdeungpo-gu, Seoul, where he announced the "Core Strategy Toward an Innovation-Leading Capital Market." Topics discussed ranged from the resumption of short selling to physical division and executive stock option exercises.

Below is a Q&A with Chairman Sohn.

- The decision on whether Osstem Implant is subject to a substantive review for listing eligibility was postponed by 15 business days. What is the reason behind this?

▲ The company did not provide sufficient materials needed for the review. Some were submitted later than the deadline. Since the Exchange also requires its own review procedures, the delay was unavoidable. It is common for the decision on substantive review eligibility to be postponed by 15 business days, occurring in over 90% of cases. This is not an unusual situation. It is for careful judgment.

- There are criticisms that the delisting decision process and period have been prolonged after the Osstem Implant case.

= It is a difficult decision because each party has different positions. Shareholders of the company want trading to resume immediately, while those who want only sound companies listed and traded ask for quick removal of problematic firms. Due to these conflicting opinions, the decision is challenging.

It is also a duty to give companies a period to secure business continuity. Many cases involve biotech companies, which often require time to wait for clinical trial results due to their nature. Therefore, the delisting decision period has inevitably been extended. We are currently working to eliminate unnecessary procedures. We are also referring to foreign cases to shorten the process, so please watch for updates.

- The stock option controversy triggered by the Kakao Pay case is significant. You mentioned preparing measures considering investor protection and the purpose of stock options. What specific plans are there?

▲ Lee Yong-woo, a member of the National Assembly's Political Affairs Committee from the Democratic Party, proposed an amendment to the Capital Markets Act to introduce a "pre-reporting system for insider trading" targeting listed companies. Ultimately, this is an issue that must be resolved by law in the political arena. Once a consensus is reached, the Exchange will refer to that part during the listing process to ensure compliance.

Personally, I believe that a system that unconditionally blocks stock option exercises is not market-friendly. It is necessary first to create an environment where information is transparently disclosed. In that regard, a method that requires transparent reporting and allows sales only after a certain period would be much more suitable for the market.

- How is the response plan progressing regarding the simultaneous listing of parent and subsidiary companies after a physical division?

▲ Methods such as granting existing shareholders the right to request stock purchase or subscription rights during physical division are being discussed, but amendments to the Capital Markets Act and the Commercial Act are necessary. Legal amendments are the responsibility of the National Assembly, and gathering public opinion is also required, so it is expected to take considerable time.

On the other hand, including whether shareholders' opinions were heard during the listing review in ESG (Environmental, Social Responsibility, Governance)-related review clauses does not require legal or regulatory amendments. We will prepare and consider implementing this in the future. We can also consider a parent company shareholder preferential allocation method through amendments to the Securities Underwriting Regulations of the Korea Financial Investment Association. Since this issue requires opinion exchanges with government authorities and the National Assembly, it is expected to take time to implement.

- When will the expansion of short selling to all stocks take place?

▲ The Exchange alone cannot decide on short selling. Communication with financial authorities is necessary. To become an advanced capital market, full allowance is inevitable. Given that discussions are underway to include Korea in the MSCI developed market index, it is difficult to convince the index review parties if short selling restrictions not imposed by other countries are maintained. Therefore, it is important to decide how long the current partial allowance of short selling will continue, including timing and methods. Consensus must be reached before moving to the next stage. At this point, it is difficult to specify exact timing and methods.