Synergy Capital Markets

Korea Exchange (KRX)

 

• In 1956, the Korean stock market opened with the start of Korea Stock Exchange. In January 2005, through integration of Korea Stock Exchange and two other domestic markets, the Korea Exchange (KRX) was created.

 

• There are four markets in the KRX;

  • Main Board (KOSPI Market),

  • KOSDAQ (Korea Securities Dealers Automated Quotation),

  • KONEX (Korea new exchange), and

  • The derivatives market.

 

• The KRX is one of the most liquid stock exchanges. Numerous companies from various industries completed their IPOs successfully on KRX.

 

• Since 2007, the KRX has been actively promoting foreign companies’ inbound IPOs to grow as an international stock exchange, be popular among foreign companies and attract international investors. (Since IPO of 3Nod - a Chinese company - in 2007, total of 23 foreign companies have listed on the KRX as of June 30, 2015.)

 

• In order to further enhance its credibility on the international platform and be leading global capital market, KRX has also signed MOUs with other global stock exchanges for mutual cooperation in areas such as information sharing, IT consulting, market links, development of new products, and any other mutually beneficial projects.

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Main Board (KOSPI Market)

 

• The KOSPI market is the main board of KRX and many of the larger domestic and international companies such as Samsung Electronics, LG Electronics, Hyundai Motor, POSCO and KIA Motors are listed on KOSPI.

 

• As of June 30, 2015, 763 companies are listed with total market capitalization amounting to KRW 1,293 Trillion, and volume amounting to KRW 663 Trillion.

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KOSDAQ Market

 

• The KOSDAQ market opened in 1996 to support venture and small and medium-sized companies’ smooth financing.

 

• IPO requirement for the KOSDAQ market is less rigorous than the requirements for the KOSPI market, enabling 1,086 of middle-sized companies with high potential to be listed.

 

• As of June 30, 2015, total market capitalization amounts to KRW 203 Trillion and transaction volume amounts to KRW 433 Trillion.

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KONEX Market

 

• The KRX opened KONEX market in 2013 to support small and middle-sized start-ups to raise capital.

 

• IPO requirement for the KONEX market is less rigorous than the requirements for the KODAQ market, enabling 81 of small and middle-sized star-up companies with high potential to be listed.

 

• As of June 30 2015, total market capitalization amounts to KRW 3.6 Trillion.

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Listing standards KRX

 

KRX Listing standards are mainly divided into two types of market, KOSPI market and KOSDAQ market; and based on the company’s industry group and size, it will select one of the two markets. Listing requirements of KOSPI market and KOSDAQ market include both qualitative and quantitative aspects.

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Qualitative requirements for both markets

 

• Company’s continuity

  • Stability: stability of operation, stability of financial position, operating history, and level of customer satisfaction.

  • Growth potential: periodic cycle of industry growth, diversification of sales item and customers, R&D and new product development

  • Case of a lawsuit, legal dispute: Impact which major lawsuits(feud over patent or management control) have on business

• ​​​Management’s transparency

  • Structure of corporate governance: major shareholder, management, outside director, audit committee

  • Internal control system: internal control system including internal accounting control system, transaction between related parties, transaction with major shareholder

  • Transparency in accounting: establishment of accounting system, accounting standard and external auditor, audit opinion, and accounting supervision

• ​Investor protection

  • Transparency in disclosure: staff and organization for public announcement

  • Protection of small shareholders: excessive shares of major shareholder, issue of convertible debt, right of small shareholders, safeguard deposit

  • wholesomeness of liquidity and stock market: diversification, protection of liquidity, settlement of argument for duplicate listing

  • Professional expertise of lead underwriter: professional execution, calculation of public offering price

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Quantitative requirements for KOSPI market

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• ​Operating history

  • ​At least 3 years

• ​Capital size

  • ​Over KRW 30 Billion of shareholders’ equity

• ​Share distribution

  • ​At least 700 shareholders

• ​Financial requirements (to satisfy either Test One or Test Two)

  • Test One,​

    • ​Sales of KRW 100 Billion for the latest fiscal year and average sales of KRW 70 billion for the recent 3 years

    • Positive operating income, income from continuing operations before tax and net income for the latest fiscal year

    • ROE and income(Either i, ii or iii)

      • ​ROE : 5% of ROE for the latest fiscal year and 10% of ROE for the recent 3 years

      • Income : Net income of KRW 3 Billion for the latest fiscal year and an aggregate of KRW 6 billion in the recent 3 years

      • For a company over KRW 100 Billion of shareholders’ equity : 3% of ROE or net income of KRW 5 Billion for the latest fiscal year and positive cash flow from operating activities

  • Test Two,​​

    • ​For the latest fiscal year, sales of KRW 200 Billion and market capitalization of KRW 400 Billion

• ​​Audit opinion

  • ​Unqualified opinion for the latest fiscal year and unqualified opinion or qualified opinion (excluding the qualified opinion due to scope limitation) for the recent two prior years

• ​Change of auditors

  • ​Auditors should not be changed within 3 years from the application year for listing eligibility review

• ​Change of largest shareholder

  • ​No change for one year period prior to the application date for listing eligibility review

• ​Corporate governance

  • ​Non –executive directors should be at least 1/4 of total number of directors(A company with total asset of KRW 2 Trillion, the number of non-executive directors should be at least 3 directors and 1/2 of total number of directors)

  • For a company with total assets of KRW 2 Trillion, an audit committee is required and at least 2/3 of the committee members should be non-executive directors

  • For a company with total assets of KRW 100 billion, it is required to have an full time internal auditor

• ​Accounting standards

  • ​Either KIFRS, US-GAAP or IFRS is accepted

  • KIFRS is equivalent to IFRS

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Quantitative requirements for KOSDAQ market

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• Operating history

  • ​At least 3 years

• ​Capital size

  • ​Over KRW 3 Billion of shareholders’ equity or over KRW 9 billion of Market Capitalization

• ​Share distribution

  • ​At least 500 shareholders

• ​Financial requirements

  • ​Positive income from continuing operations before tax for the latest fiscal year

• ​ROE, net income, sales & market capitalization 

  • ​General Corporate (must satisfy one of the three below)

    • ​ROE 10%

    • Net income of KRW 2 Billion for the latest fiscal year

    • For the latest fiscal year, sales of KRW 10 Billion and market capitalization of KRW 30 Billion

  • ​Venture Company (must satisfy one of the three below) - Classification as a Venture Company needs to be certified by the Korea Venture Business Association

    • ​ROE 5%

    • Net income of KRW 1 Billion for the latest fiscal year

    • For the latest fiscal year, sales of KRW 5 Billion and market capitalization of KRW 30 Billion

• ​​Audit opinion

  • ​Unqualified opinion for the latest fiscal year

  • However, in practice, unqualified opinion for the recent two prior years is advised for a successful listing

• ​Change of auditors

  • ​Auditors should not be changed within 3 years from the application year for listing eligibility review

• ​Change of largest shareholder

  • ​No change for one year period prior to the application date for listing eligibility review

• ​Corporate governance

  • ​At least 3 directors should be appointed with outside/non-executive directors making up at least 1/4 of total number of directors (a company with total assets of KRW 2 Trillion or more, should appoint at least 3 directors with the number of non-executive directors making up at least 1/2 of total number of directors)

  • For a company with total assets of KRW 2 Trillion or more, an audit committee is required with at least 2/3 of the audit committee members being outside/non-executive directors

  • For a company with total assets of KRW 100 Billion or more, a full time internal auditor is required

• ​Accounting standards

  • ​Either KIFRS, US-GAAP or IFRS is accepted

  • KIFRS is equivalent to IFRS

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