[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

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 milestone of 1,000 points. However, there are lingering doubts, as previous attempts to revitalize the KOSDAQ through policy measures have failed to deliver meaningful results, raising concerns that this time may be no different.

On December 19, the Financial Services Commission announced the "KOSDAQ Trust + Innovation Enhancement Plan," declaring its intention to overhaul the KOSDAQ so that it can serve as a growth platform for innovative companies. The commission plans to promote internal innovation in the KOSDAQ market by strengthening the independence and competitiveness of the KOSDAQ division and expanding its workforce. In addition, it will redesign the listing review and delisting criteria to establish a "high birth, high death" structure. The commission also aims to expand the stable demand base by attracting more institutional investors to the KOSDAQ and to enhance market trust by strengthening investor protection.

The Fourth KOSDAQ Revitalization Policy... Will It Be Different This Time?

As part of the new measures, the financial authorities will increase the tax benefits cap for KOSDAQ Venture Funds, which are core institutional investors in the KOSDAQ market, and grant tax benefits to the newly introduced Business Development Companies (BDCs). The preferential allocation ratio for KOSDAQ Venture Fund subscriptions in public offerings will also be raised from 25% to 30%.

In particular, to incentivize participation by pension funds, the authorities will include the KOSDAQ index at a certain ratio when evaluating fund performance benchmarks.

At the same time, the listing review and delisting systems will be redesigned to establish a "high birth, high death" structure, facilitating the smooth listing of innovative companies and the swift exit of underperforming companies. To this end, a tailored technology-special listing system will be fully introduced for key sectors such as artificial intelligence (AI) and the space industry.

Additionally, to strengthen the independence and competitiveness of the KOSDAQ division, the Korea Exchange will independently evaluate the KOSDAQ division's performance, separate from other divisions, during management assessments, and provide additional incentives based on the results. The organization and workforce will also be expanded and reallocated to solidify internal competition with the main board within the Korea Exchange.

However, measures such as strengthening the independence of the KOSDAQ market and attracting institutional investors have been included in previous KOSDAQ revitalization policies, so it remains to be seen whether the new plan will be as effective as hoped.

After the KOSDAQ and main board were integrated in 2005, the KOSDAQ was perceived as a subordinate market, leading to poor performance. In 2013, the KOSDAQ Market Committee was established to restore its independence. However, this also fell short of expectations, prompting the inclusion of further independence measures in the current plan. Although the previous reform aimed to foster the KOSDAQ as an equal competitor to the main board, this ambition was not fully realized and is being repeated once again.

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

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

Experts emphasized that it is crucial for the government to implement the new measures as planned. Lee Hyoseop, Senior Research Fellow at the Korea Capital Market Institute, stated, "What the KOSDAQ really needs is stronger measures to expel zombie companies and to expand the demand base. There are very few markets worldwide where about 100 companies are listed each year, as in the KOSDAQ. While the intent behind the technology-special listing system is good, many companies listed through this system have monthly sales of less than 300 million won. The companies worth investing in scale up and move to the KOSPI, while the zombie companies that are not worth investing in remain in the market, which is why foreign capital does not enter." He added, "Although the authorities have strengthened delisting requirements, when push comes to shove, it may be difficult to actually delist companies as intended. Delisting can be problematic for companies, but for investors, it means their shares become worthless, potentially leading to lawsuits and prolonged delisting processes. It is important for the authorities and the exchange to enforce the expulsion of zombie companies in a timely manner, according to the established principles and standards."

As the financial authorities plan to change the exemption from delisting for special listing companies-such as technology-special and non-profit companies-to be conditional on the disclosure of plans to enhance corporate value, companies will also need to make active efforts to communicate. Lee Sangho, Research Fellow at the Korea Capital Market Institute, said, "In the short term, what can be done to revitalize the KOSDAQ is value-up disclosures, meaning companies should strengthen communication with shareholders. In particular, companies with high growth potential, such as those in AI and biotech, need to transparently disclose fundamental information and clinical outlooks 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, pointed out, "Over 90% of capital market exits in Korea are through KOSDAQ listings, while exits through M&A account for less than 10%. This is the exact opposite of the United States, where large companies actively acquire venture firms with new technologies. Only one or two ventures survive, but if they succeed in monetizing, the company value increases and the associated risks are borne by large corporations. In Korea, however, companies tend to go public, so the investment risks are borne by investors, most of whom are individuals. These individuals often lack expertise in ventures and new technologies, and have limited ability to diversify risk. A market where individuals bear the risks of listing is not healthy."

Lee also noted, "NASDAQ has a variety of capital-raising channels, such as the junk bond market and the secondary market, in addition to IPOs. In Korea, however, the capital raising and exit system revolves around IPOs as the sole channel, which causes problems. To address this, it is necessary to revitalize the OTC equity trading market, such as K-OTC. Providing tax incentives to market participants could be considered as a solution."