The FSC outlined its policy direction and key tasks to push forward capital market reform in order to enhance the vitality of capital markets and strengthen its support f or real economic activities.
As part of the capital markets reform, the FSC announced today its detailed plan to vitalize the KONEX, OTC trading of unlisted stocks and the derivative market. Plans for the remaining tasks will be announced as scheduled.
I. VITALIZE THE KONEX MARKET
CURRENT SITUATION
The KONEX was launched in June 2013 as a third stock market to trade sh ares of start-ups and small & medium-sized companies. The KONEX market has expanded rapidly in size since its launch. The number o f listed companies rose from 21 in July 2013 to 80 in March 2015. Market capitalization grew from KRW 0.46 trillion to KRW 1.94 trillion over the same period. It also provided a dire ct channel for small and medium-sized comp anies to raise capital as 27 companies raised a total of KRW 98.7 billion as of March 201 5.
The KONEX currently allows only institutions or individuals with deposits of more than KRW300 million to invest. It has relatively eased listing regulations with t he appointment of designated advisors to assist f ilings, reporting and public disclosure of the KONEX-listed companies.
MEASURES TO VITALIZE THE KONEX MARKET
More incentives need to be devised to encourage more start-ups to be listed on the KONEX, while attracting more venture capital investments.
1. Lower barriers while exp anding incentives for investors
(Individual investors) The de posit regulation will be eased to KRW 100 m illion from the current KRW 300 million to l ower hurdles to individual investors. The KONEX will also introduce a ‘small investment account’ to allow individual investors to inve st up to KRW 30 million per year regardless of deposit levels.
(Institutional investors) Hig h-yield funds holding more than 2% of their p ortfolio in KONEX stocks will be given priority in allocation of shares in listings of such companies on the KOSDAQ.
2. Ease listing requirements for companies
Quantitative standards for KONEX listing will be abolished. The number o f designated advisors will be increased fro m the current 16 to 51. A special listing will b e introduced for early-stage startups to allow t hem to be listed without designated advisors.
3. Support for KOSDAQ list ing of KONEX-listed companies
Listing requirements will be eased for KONEX-listed firms seeking to list their shares on the KOSDAQ through merging with KOSDAQ-listed SPAC.
4. Strengthen investor prote ction
Individual investors should be well informed by brokerage firms about mar ket characteristics of KONEX and relevant investment risks when opening a small investment account. The bourse and designated advisors will be required to offer investors sufficient information about listed companies. A special listing program will require stronger measures to protect investors.
IMPLEMENTATION SCHEDULE
Easing the deposit regulation will be implemented immediately after the revision to the KRX regulation in May. Small inve stment accounts will be introduced as soon a s brokerage firms complete development of rele vant systems. A special listing for early-stage startups and KOSDAQ listing of KONEX-listed companies through a merger with SPAC are scheduled to be implemented in June with r elevant revisions to the KRX regulations.
II. ESTABLISH K-OTC BB *
* K-OTC BB: Korea Over-The-Co unter Bulletin Board
The Korea Financial Investme nt Association (KOFIA) established the Free Board market in March 2000 to trade unlisted s tocks of small and medium-sized companies. As the over-the-counter market failed to boost trading of unlisted stocks, the FSC and KOFIA announced the plan to overhaul the Free Boarrd market in January 2014. Under the plan, th e Free Board was reorganized into two-tier mark ets: ① K-OTC (launched on August 25, 2014) as a primary market for trading unlisted stocks of b lue-chip companies; and ② K-OTC BB (to be launched on April 27, 2015) as a secondary market for all non-listed stocks of SMEs or venture companies.
III. EXPAND THE DERIVATIVES MARKET
CURRENT SITUATION
The overall trading volume is falling with trading of KOSPI 200 Futures a nd Options decreasing, while underlying assets are diversified into individual equity, currency and interest rate products. Speculative trad ing diminished particularly by retail investors, enhancing market stability with investor protection measures1 in place.
NEW PRODUCTS TO BOOST T HE DERIVATIVES MARKET
(‘Mini KOSPI 200’ Futures & Options) Trading units for KOSPI 200 der ivative products will be downsized in order to attract more retail investors and satisfy sophisticated investment demands. The trading units of Mini products will be cut to one-fifth compared to KOSPI 200 Futures and Options.2
(KOSDAQ Individual Equity Futures) New futures products will be developed with individual stocks listed on KO SDAQ as underlying assets to offer investor s risk hedging tools for KOSDAQ investments.
(Dividend Index Futures) Neew futures products will be developed and introduced with dividend index as underlying assets in response to growing demand for dividend investments.
(RMB Currency Futures) C hinese Renminbi(RMB) futures will be introd uced to provide risk hedging tools so that RM B trading market could function in a stable manner.
LISTING SCHEDULE (TENTATIVE)
- Mini KOSPI 200 products & KOSAQ Futures (July 2015)
- Dividend Index Futures (Au gust 2015)
- RMB Futures (September 20 15)
* Please refer to the attached PDF for details.