[KOSDAQ Revitalization] ① Repeated Revitalization Measures, Will They Work This Time?

Financial Authorities Announce "KOSDAQ Trust + Innovation Enhancement Plan"
Institutional Investment, Strengthened Independence, and Redesign of Listing and Delisting Criteria
Previous Revitalization Policies Fell Short of Expectations
Key Issues: Removal of Zombie Companies and Strengthening Corporate Communication

As financial authorities unveil new policies aimed at improving the structural fundamentals of the KOSDAQ, expectations are rising for a revitalization of the KOSDAQ market. While the KOSPI has surpassed the 4,000-point mark, the relatively overlooked KOSDAQ is now drawing attention, with hopes that government policies will help it reach the symbolic 1,000-point milestone. However, given that previous attempts to invigorate the KOSDAQ through similar policies have failed to deliver substantial results, there remains skepticism about whether this time will be any different.

On December 19, the Financial Services Commission announced the "KOSDAQ Trust + Innovation Enhancement Plan," stating its intention to fundamentally improve the KOSDAQ market so it can serve as a growth platform for innovative companies. The Commission plans to promote internal innovation within the KOSDAQ market by strengthening the independence and competitiveness of the KOSDAQ division and expanding its workforce. It will also redesign listing review and delisting criteria to establish a "high birth, high death" structure. Additionally, the Commission aims to expand the stable demand base by encouraging institutional investment in the KOSDAQ and enhancing investor protection to boost market trust.

The Fourth KOSDAQ Revitalization Policy: Will This Time Be Different?

In this plan, financial authorities will increase the tax benefit cap for KOSDAQ Venture Funds, which are key institutional investors in the KOSDAQ market, and grant tax incentives to the newly introduced Business Development Companies (BDCs). The priority allocation ratio for KOSDAQ Venture Fund IPO subscriptions will also be raised from 25% to 30%.

In particular, to encourage participation from pension funds, the authorities will reflect the KOSDAQ index at a certain ratio in benchmark returns when evaluating fund performance.

Furthermore, by redesigning the listing review and delisting system to create a "high birth, high death" structure, the authorities aim to facilitate the smooth listing of innovative companies and the swift removal of underperforming firms. To this end, a tailored technology exception listing system will be fully introduced for key sectors such as artificial intelligence (AI) and the space industry.

To strengthen the independence and competitiveness of the KOSDAQ division, the Korea Exchange's business evaluation will separately assess the KOSDAQ division from other divisions, and additional incentives will be provided based on the results. The organization and workforce will also be expanded and redeployed to establish a solid internal competitive system with the main board within the Korea Exchange.

However, measures such as strengthening the independence of the KOSDAQ market and encouraging institutional investment have been included in previous KOSDAQ revitalization policies, so it remains to be seen whether this plan will deliver the expected results.

After the integration of the main board and the KOSDAQ market in 2005, the KOSDAQ was perceived as a secondary market and struggled. In 2013, the KOSDAQ Market Committee was established to strengthen its independence. However, this also failed to meet expectations, leading to renewed efforts to enhance independence in the current plan. Although the previous reform aimed to foster the KOSDAQ as an equal competitor to the main board, this intention was not fully realized and is being repeated once again.

Park Gihun, a researcher at Korea Investment & Securities, noted, "Momentum for KOSDAQ revitalization has been attempted three times in the past 20 years, but each time, the result was a brief surge followed by prolonged stagnation. The 2005 exchange integration only changed the market's appearance, the 2013 launch of KONEX increased supply without demand, and the 2018 venture funds allowed liquidity to flow into the mezzanine (CB, BW) market."

Strengthening Corporate Communication Is Key... Over-the-Counter Market Revitalization Also Needed

Experts emphasized that it is crucial for the government to implement the current plan as intended. Lee Hyoseop, Senior Research Fellow at the Korea Capital Market Institute, stated, "What the KOSDAQ really needs is stronger removal of zombie companies and an expanded demand base. Nowhere else in the world do you see around 100 companies listed on a single market each year like the KOSDAQ. While the purpose of the technology exception listing system is positive, many companies admitted through this system have monthly sales of less than 300 million won. Companies worth investing in tend to scale up and move to the KOSPI, while zombie companies that are unappealing to investors remain in the market, deterring foreign capital inflows." He added, "Although the authorities have tightened delisting requirements, when the time comes, they may not be able to enforce delistings as intended. Delisting is problematic for companies, but also for investors, whose shares could become worthless, leading to lawsuits and prolonged delisting processes. It is important for the authorities and the exchange to strictly enforce the removal of zombie companies in a timely manner according to established principles and standards."

As the financial authorities move to make the exemption from delisting for technology exception and unprofitable companies conditional on the disclosure of value enhancement plans, active communication from companies is also necessary. Lee Sangho, Research Fellow at the Korea Capital Market Institute, said, "In the short term, encouraging companies to enhance value through disclosures and strengthen communication with shareholders is a practical step for KOSDAQ revitalization. Especially for high-growth sectors like AI and biotech, companies need to transparently release fundamental and clinical outlook information to shareholders. The government and the exchange should encourage KOSDAQ-listed companies to participate in value-up disclosures."

There are also calls for the revitalization of the mergers and acquisitions (M&A) market and the over-the-counter (OTC) market. Ahn Donghyun, Professor of Economics at Seoul National University, commented, "Over 90% of capital market exits in Korea occur through KOSDAQ listings, while less than 10% are via M&A. This is the exact opposite of the United States, where large companies compete to acquire venture firms with new technologies. Only one or two ventures survive, but if they succeed in monetizing, their value rises and large companies bear the associated risks. In Korea, however, companies tend to go public, leaving investors-mainly individuals-exposed to venture investment risks. These individuals often lack specialized knowledge of ventures and new technologies and are unable to diversify risk, making this an unhealthy market structure."

Lee also noted, "NASDAQ has a vibrant junk bond market and secondary markets, providing diverse funding channels beyond IPOs. In Korea, however, the funding and exit system revolves around IPOs as the sole channel, which creates problems. To address this, it is necessary to activate OTC equity trading markets like K-OTC. Offering tax incentives to market participants could be considered as a solution."