[Insight & Opinion] The Korea Exchange Must Remove Its Mask for the Capital Market to Thrive

Chronic "Korea Discount" Persists
Unlisted Exchange Structure at the Core
Breaking Free from Control to Embrace Market Principles

For a long time, the Korean capital market has suffered from a structural undervaluation known as the "Korea Discount." As is well known, the chronic governance issues unique to Korea and the dividend income tax system that blocks the inflow of funds into the capital market are the biggest factors. However, underlying these phenomena are the unlisted structure of the Korea Exchange and its opaque governance.

Contrary to what many people misunderstand, the Korea Exchange is not a government-affiliated public enterprise. Currently, the main shareholders of the Korea Exchange are about 40 private financial institutions, including NH Investment & Securities and Hanyang Securities, which share ownership of the exchange. Nevertheless, despite this private ownership structure, key appointments and institutional designs at the exchange remain under the indirect influence of the government, particularly the Ministry of Economy and Finance. This is why criticism persists that, while the exchange wears the mask of a private company, its true nature is that of a government-controlled institution.

Major global exchanges have already established market-centered structures for over 25 years. In the United States, NASDAQ went public in 2002 and the New York Stock Exchange in 2006, fully transferring the center of the stock market to the private sector. Europe is no exception. Germany and the United Kingdom gained the trust of global investors through listings in 2001, and Euronext?which integrated the stock exchanges of France, the Netherlands, and Belgium?went public in 2000 and now functions as the largest IPO platform in Europe. Such structures marked a turning point, enabling exchanges to secure both independence and strong momentum as "capital market hubs."

Competing countries in Asia also moved quickly. After the Asian financial crisis, the Hong Kong and Singapore exchanges, having recognized the urgent need to strengthen capital market competitiveness, both went public in 2000. Since then, they have become true global financial hubs by actively attracting overseas investors and making agile decisions. Japan, whose outdated capital market platform had been an Achilles' heel, also achieved success by merging the Tokyo and Osaka exchanges and going public in 2013, and has recently seen positive results. While there are countries like Taiwan that still have unlisted exchanges, even in these cases, government intervention is strictly excluded. The Korea Exchange, however, is now one of the few exchanges in the world?alongside those in China and Vietnam, where the Communist Party holds power?that remains under strong government control.

Listed exchanges have transformed themselves into entities that are monitored by the market, compete in the market, and design the market. From the moment they went public, these exchanges have devoted themselves to actively monitoring the market and presenting quality companies in order to generate shareholder value, which is their primary objective. As a result, capital markets have become more dynamic, and innovative companies have been able to raise capital through listings, serving as engines of economic growth. This is similar to how a privately owned department store renovates its interior, enhances customer service, and carefully selects good products for display to boost sales. Yet, the Korea Exchange still seems stuck in the image of a state-owned department store in a communist country, as seen in old textbook photos.

The Korea Exchange can no longer afford to fall behind. It is urgent to remove government control and establish an independent board of directors and transparent management structure. Listing the exchange is not just a simple restructuring of ownership; it is a key measure to restore a market-centered capitalist order. The exchange cannot discuss the advancement of the capital market without first adhering to market principles itself. Now is the time for the Korea Exchange to remove its long-worn mask, go public, and function properly for the activation of the Korean capital market, which is both the goal of the exchange and the nation.

Suh Joonsik Professor of Economics, Soongsil University