South Korea to Strictly Review Dual Listings to Prevent Shareholder Benefit Concentration

The Financial Services Commission (FSC) is taking decisive action to reform the capital market by addressing the long-standing issue of dual listings. Chairman Lee Bok-hyun's remarks at the seminar hosted by the Korea Exchange underscore the government's commitment to creating a fairer market for all investors.

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Controlling shareholders have easily used dual listings as a means to maintain substantial management control while expanding business divisions and affiliates.

For too long, controlling shareholders have exploited dual listings to maintain management control while expanding their business segments and affiliates. This practice has often led to a disconnect between the parent company's stock price and the subsidiary's growth, ultimately disadvantaging individual investors. The FSC's proposed changes, which would generally prohibit dual listings except under specific circumstances, are a significant step towards rectifying this imbalance.

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We must not cover up these problems any longer and must improve them together.

This move aligns South Korea with international standards. Major global markets, including the US and Japan, have already implemented stricter regulations on dual listings. The FSC's data, showing South Korea's dual listing ratio significantly higher than that of the US, Japan, and China, highlights the urgency of this reform. The government's intention to rigorously examine whether new listings create asymmetric benefits for a select few, rather than fair value for all shareholders, signals a strong commitment to investor protection.

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In particular, controlling shareholders have had an incentive to lower the parent company's stock price due to issues such as inheritance, so they could choose dual listings without the burden of stock price discounts.

While acknowledging that dual listings can serve as a legitimate tool for corporate growth and fundraising, the FSC's emphasis on strict scrutiny ensures that such practices will be permitted only when they genuinely benefit all stakeholders. This balanced approach reflects a mature understanding of market dynamics while prioritizing fairness and transparency. The planned implementation by July demonstrates the government's resolve to enact these crucial reforms swiftly.

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In the US and UK, it is common for the parent company to hold 100% of the subsidiary's shares and for only the parent company to be listed. In Asian countries such as Japan and Hong Kong, there is also a trend of restricting dual listings through strict listing reviews and strengthened disclosures.