SOUTH KOREA: New Regulation to be Introduced to Reform KONEX

Monday February 4 2019

South Korea’s Financial Services Commission (FSC) has introduced new rules to enhance the Korea New Exchange (KONEX) in an effort to promote the growth of Small and Medium Sized Enterprises (SME’s) and venture firms.
KONEX was launched in 2013 as an exchange for SMEs too small to list on the KOSDAQ market. Whilst KONEX has grown significantly, low liquidity and a lack of price discovery prompted the need to reform the KONEX market. Against this backdrop, the FSC intends to revitalise the role of KONEX as a springboard for SMEs and venture companies to grow further and a platform for venture capital investors to exit and re-invest.
The key changes implemented under the FSC’s new rules are:

i. KONEX-listed companies will be permitted to raise funds through crowdfunding. Until now, this activity was limited to non-listed SMEs and small public offerings only.
ii. Regulations that cap discount rates on newly listed shares will be eased for KONEX-listed companies:
i. For a public offering, if an underwriter prices new shares based on demand forecast, new share offerings will be exempted from caps on discounted rates.
ii. For third-party allocations, new shares allotted to third parties will be allowed to offer at a further discount exceeding the current 10% cap.
iii. External audit standards will be eased or tailored for KONEX-listed companies to reduce their regulatory burdens.
iv. To improve investor protection, KONEX listed companies will be required to disclose further information. The number of information items subject to disclosure rules will be increased from 29 to 35.
v. KONEX will also introduce a disclosure rule which allows KONEX-listed companies to voluntarily provide explanation or clarification with regards to misinformation or rumours that could affect investor decisions.

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