[Q&A] Korea Exchange Chairman: "No Major Hurdles for KOSPI to Surpass 6,000"

KOSPI 7,000 Marks the Premium Market Stage

On the 5th, Jeong Eunbo, chairman of the Korea Exchange, said, "If we compare major markets, I think there should be no major problem for the KOSPI to surpass 6,000."

Jung Eunbo, chairman of Korea Exchange, is speaking at a New Year press conference held in the main conference hall on the 21st floor of Market Tower 1, Korea Exchange, Yeouido, Seoul, on the 5th. Korea Exchange

At a New Year's press briefing held on this day at the Korea Exchange Market Tower 1, 21st-floor main conference room in Yeouido, Seoul, Chairman Jeong said, "The combined price-to-book ratio (PBR) of the KOSPI and KOSDAQ is around 1.9," adding, "This is similar to Japan, while the figures for the United Kingdom, France, and Germany are around 2.3, and the United States is above 5."

Chairman Jeong emphasized, "If the KOSPI reaches 7,000, I assess that it would mean entering a stage where it is recognized as a premium market."

The following is a Q&A session.

-You have finalized the decision to extend trading hours. What tasks remain?

▲We are aiming for the end of June to extend trading hours to 12 hours. Nexttrade is already operating 12-hour trading. Globally, competition among exchanges is expanding. For example, according to data released by Nasdaq last year on nighttime trading investors, 20% were U.S. investors and 80% were overseas investors. Among them, 50% were Korean investors. In other words, a total of 40%, the Korean investors often referred to as "Seohak Ants," invested in the U.S. market. Starting in October this year, Nasdaq also plans to officially introduce 24-hour trading. I believe extending trading hours is inevitable in order to align with global trends and to create a level playing field with domestic alternative trading systems. Ultimately, we will move toward 24-hour trading, but at the prior stage, since Nexttrade is already operating 12-hour trading, we are pushing to extend the hours to 12 hours. A number of preparations are needed in the meantime. Among them, the most important is IT systems. We will consult with member firms on their IT readiness and provide support where necessary. So far, we see no major issues in implementing the extension by the end of June. However, it is also true that some small and mid-sized securities firms are expressing concerns about the burden of IT development. We will actively provide whatever support is needed.

-How is the discussion on dual listings progressing?

▲Last year, the issue of dual listings was raised socially, and principles were established. Statistically, dual listings account for around 20%, compared with 3-4% in Japan and about 1% in the United States. In fact, in comparison with other major advanced markets, I believe the level of dual listing is relatively high. Therefore, it has become necessary to establish principles for new listings and mergers and acquisitions (M&A), and we are currently reviewing this. First of all, I think we need to build a system that, as far as possible, prevents dual listings. The key issue is how we can properly protect small investors. Therefore, we should, in principle, prohibit dual listings while at the same time reviewing measures that guide sufficient protection for small investors in cases where dual listings occur. Ultimately, this is a matter that must be decided in close consultation with the policy authorities, and we will continue discussions and improve the system. There are also concerns that if we tighten the dual listing system excessively, domestic companies may turn their eyes to overseas markets. We will take such concerns into account when designing the制度 as well.

-Recently, JP Morgan suggested an upper band of 7,500 for the KOSPI. Do you think this is achievable? Also, approval for the STO over-the-counter exchange is being delayed; what is your view?

▲I will preface my remarks by saying that, from the exchange’s standpoint, it is difficult to officially state that the index will reach a certain level. Generally, PBR serves as one comparative benchmark among major exchanges. Currently, the KOSPI has exceeded 1.65 and the KOSDAQ has surpassed 2.2. The combined PBR of the KOSPI and KOSDAQ is around 1.9. This is similar to Japan, while the United Kingdom, France, and Germany are around 2.3, and the United States is above 5. If the KOSPI index exceeds 6,000, the PBR would rise to around 2.2-2.3, reaching the level of advanced markets. If it rises further, I believe it could then enter the premium stage. Comparing major markets, I think there should be no major problem for it to surpass 6,000. If it reaches 7,000, I assess that it would mean entering a stage where it is recognized as a premium market. As for the STO over-the-counter exchange, we are waiting for a decision from the Financial Services Commission. Recently, in the global capital market, there has been a steady shift from the so-called traditional exchange markets centered on stocks and bonds to over-the-counter markets based on blockchain, where trading can take place 24 hours a day. These markets do not require funds for deposit, settlement, or clearing. If we obtain a license for an over-the-counter exchange, we will further develop new revenue sources and actively absorb demand that is shifting to digital OTC exchanges.

-You mentioned that in the pre-market, securities firms wanted an exclusive time slot, but according to them, it was not a voluntary desire but a forced choice.

▲Whether or not to become a member of the exchange is up to each securities firm. That is their own decision, whether for the regular session, the pre-market, or the after-hours session. We have already explained that the extension of trading hours reflects an international trend. Aligning with Nexttrade’s schedule was based on the wishes of member securities firms, and we also took technical aspects into consideration.

-How specifically are discussions on shortening the settlement cycle progressing?

▲With regard to shortening the settlement cycle, the United States, India, and countries in South America have already shifted to T+1. European countries are preparing to shorten the settlement cycle with a target of October 2027. I believe our decision should also follow concrete discussions and global developments. It would be problematic if other major countries shorten their settlement cycles and we do not, but it could also be problematic if we move first before a global standard is established. I think this is an issue that we must pursue while actively taking into account global implementation trends.

-Recently, while the KOSPI and KOSDAQ have shown growth momentum, there are many assessments that the KONEX market remains neglected.

▲I believe it is time to redefine the roles of the three markets: KOSPI, KOSDAQ, and KONEX, and we are consulting closely with the policy authorities. When we first introduced the KONEX market, we envisioned a natural progression in which companies would pass through KONEX and then move on to the KOSDAQ market. In that process, the introduction of the technology special listing制度 led many technology companies to prepare for listing with the KOSDAQ as their immediate goal. Discussions are underway on measures to improve the exchange markets, and in the National Assembly there are also proposals related to legislation. Taking all of this into account, we will work together with the policy authorities to devise effective measures.

-The ruling party is currently pushing for a plan to convert the exchange into a holding company structure and separate the KOSDAQ market. What is your view?

▲For venture companies with technological capabilities, I believe we should provide as many opportunities as possible, but for underperforming companies that fail to establish a viable profit model, we must boldly delist them. Since there are legislative proposals already put forward by the policy authorities and the National Assembly, we will, through consultation, devise the most appropriate plan for restructuring the markets.

-There is also a view that the KOSDAQ is undervalued compared with the KOSPI.

▲To earn the trust of investors in the KOSDAQ market, underperforming companies must be cleaned out; only then can the undervaluation issue be resolved. Naturally, I do think the KOSDAQ market is in fact undervalued.

-Why did you now specify June 29 as the date for extending trading hours? What impact will it have on liquidity?

▲We decided on that date after discussing when it would be feasible to start, taking into account IT and other factors. I believe that our step-by-step extension of trading hours is very necessary in order to attract overseas liquidity into the domestic market. The first way to create new liquidity is for the public to invest more of their assets in the domestic stock and securities markets through productive finance. The second way is to attract overseas investors, and beyond that, there is no other way. Therefore, it is necessary to remove the various constraints that have effectively served as obstacles for overseas investors when they invest in the domestic market.