[Exchange Competitiveness Diagnosis]③ Speed Up Structural Reorganization to Strengthen Competitiveness... IPO Review Also Needed

Korea Exchange Established Future Business Division Last Year
Diversifying Profitability by Separating Data and Index Businesses
Perception as a "Public Institution Under Financial Services Commission Control" Hinders Progress
Need to Transition to a Private Company Through IPO

There are opinions that the Korea Exchange (KRX), facing competition both domestically and internationally, needs to restructure its market to enhance its competitiveness. Additionally, views have been raised that creating an environment where it can compete on equal footing with overseas exchanges through initial public offerings (IPOs) or establishing subsidiaries is also necessary.

Korea Exchange, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

The Korea Exchange is continuously making efforts to strengthen its competitiveness on its own. Last year, it established the Future Business Division. Launched at the end of September last year, the Future Business Division was created by separating the Index Business Department and Data Business Department from the Management Support Headquarters, resulting in a total of three specialized business departments. This move was made considering that major overseas exchanges recognize data and indexes as core businesses and operate them as independent organizations such as subsidiaries. The exchange plans to strengthen its business capabilities through the specialization and advancement of the index and data businesses and focus on securing future growth engines by discovering new revenue models amid intensifying competition, including the establishment of alternative trading platforms. At a press briefing in May last year, Jeong Eun-bo, Chairman of the Korea Exchange, announced the plan to establish the Future Business Division, stating, "We will actively explore future revenue sources beyond the existing fee-based revenue structure," and explained, "We will establish an organization centered on growth businesses such as indexes and data to serve as a focal point for securing new revenue sources."

Market structure reform for the stock market is also underway to enhance competitiveness. Currently, research services for this are in progress. Earlier, Chairman Jeong said, "There has been a growing awareness of the need for structural reform of the KOSPI Market, KOSDAQ Market, and KONEX Market," adding, "We have started research together with policy authorities and research institutes and will focus on securing investor trust while promoting market structure reform."

Professor Lee Joon-seo of Dongguk University’s Department of Business Administration said, "To strengthen competitiveness, reforming the exchange system and governance structure is a priority," adding, "It is necessary to enhance the qualitative level of listed companies through a comprehensive review of listing and delisting systems. Also, some parts of KONEX and KOSDAQ, which are currently in a dormant state, should be moved to the over-the-counter market, and KOSDAQ should be divided into two tiers based on whether companies are marginal or not." He continued, "In particular, the KOSPI Market should also be divided into two tiers depending on the willingness for value-up. If the market is divided into two tiers considering corporate governance and shareholder returns, value-up will naturally be possible."

There are also opinions that an IPO of the exchange itself should be considered. Previously, financial authorities announced the "Plan to Strengthen the Competitiveness of the Exchange Market" in 2015. This plan aimed to convert the Korea Exchange into a holding company, pursue its listing, and separate each market as subsidiaries. However, it was scrapped as it failed to pass the National Assembly at the time.

Senior Research Fellow Lee Hyo-seop of the Korea Capital Market Institute evaluated, "The Korea Exchange has maintained a certain level of competitiveness for 70 years and has made many positive efforts in terms of profitability and growth," and emphasized, "While converting to a holding company has advantages such as efficiently promoting new businesses and fostering synergy among affiliates, it is more important now to transform into a private company through an IPO to acquire the ability to compete with leading global exchanges in overseas markets."

There are also criticisms that the Korea Exchange’s strong public character does not help enhance competitiveness. Although the Korea Exchange was removed from the list of public institutions in 2015, it still remains under the control of the Financial Services Commission and is still perceived as a public institution. Professor Lee Joon-seo said, "The fact that the exchange is excessively influenced by financial authorities is also a matter to consider," adding, "One reason why the Taiwan Stock Exchange has recently made significant progress is that its chairman is a private individual, allowing for innovative and market-friendly strategies."

A capital market official said, "Because there is a strong perception of the exchange as a public good, it inevitably faces difficulties in promoting business," adding, "For example, the exchange’s data is considered a public good, so selling it for a fee is not accepted. Overseas, charging for data usage is thorough, but domestically, this perception prevents such practices."