[Column] Exchange Ignoring Warnings on 'Value-Up Controversy'

SK Hynix In, KB Financial Out
Foreign Securities Firms' Harsh Criticism... Value-Up Advisory Panel Already Pointed Out
Emphasizing 'Principle and Concept'... Must Abandon Bureaucratic Mindset

Just two days after the release of the Korea Value-Up Index, dubbed the "flower of corporate value-up policies," the Korea Exchange (KRX) held an emergency briefing on the 26th. Although explanations were provided in response to the harsh criticism pouring in from domestic and international markets, the aftertaste remains bitter.

Since the value-up plan was finalized and announced in May, the value-up index has been the market's top focus. Contrary to expectations, the released value-up index included Doosan Bobcat, embroiled in governance restructuring controversies, and SK Hynix, which recorded significant operating losses last year, while excluding KB Financial Group and Hana Financial Group, regarded as exemplary in enhancing corporate value. Foreign institutional investors such as Swiss-based UBS and Hong Kong-based Cr?dit Lyonnais (CLSA), who do not need to consider the Korean government's stance, sharply criticized the index through investor notes and English reports, questioning if it was a "value-down?"

The problem is that concerns about the composition of the value-up index were not raised for the first time. The KRX's value-up index faced similar concerns during the "Corporate Value-Up Advisory Panel Meeting" on September 2. Participants pointed out that by emphasizing only "principles" and "concepts" such as consecutive dividend payments and uniform return on equity (ROE), the actual outcome was completely different from what the market had anticipated. There were also remarks that the similarity with existing benchmark indices exceeded 90%. When similarity is high, there is no differentiation, rendering the development of a new index meaningless.

The KRX itself acknowledged the points raised by the advisory panel regarding the index's direction. Lee Bu-yeon, Executive Director of the KRX Management Support Headquarters, said at the briefing, "During the advisory panel meeting, the market requested an index composed of stocks expected to rise in price and one that could attract investors. However, the KRX's concept involved relatively low investment returns, raising concerns that it might not meet these needs." The KRX clearly received warning signals.

At this point, even the necessity of the value-up advisory panel is questionable. The advisory panel was originally established to involve private experts in meetings to closely convey market intentions during the policy implementation process. Launched in March, the panel consists of 12 members, including three from academia (one chairperson), four investors, four corporate and related institution representatives, and one from the KRX. Investors include the National Pension Service, Samsung Asset Management, and JP Morgan.

Some argue that a civil servant mindset, unconcerned with short-term results, may still linger within the KRX. The KRX ceased being a public institution nine years ago in 2015 when the legal establishment of Alternative Trading Systems (ATS) became possible. Now, with external parties preparing to launch ATS, the likelihood of the KRX being designated a public institution again seems low. An industry insider met during the investigation remarked, "As a private index operator, the KRX paid more attention to 'policy significance'?something a private operator might not consider for business performance?resulting in this outcome."

The fact that the KRX held an emergency briefing in the absence of Chairman Jung Eun-bo, the ultimate person responsible, due to a business trip, is evidence of the urgency. At least the willingness to listen to market opinions now and consider changing the components within the year is welcome. We hope the KRX, as a flexible 'index operator,' can demonstrate operational finesse going forward.