As the global financial markets become increasingly competitive, South Korea has embarked on a bold journey of reforming its stock marketCentral to this initiative is a tightening of regulations surrounding corporate listings, which represents a vital strategy aimed at enhancing the quality and integrity of the South Korean stock market landscape.
Recently, the Financial Services Commission of South Korea unveiled significant measures that will raise the total market capitalization requirement for companies listed on the Korea Composite Stock Price IndexStarting in 2026, this threshold will leap from the current 5 billion Korean won (approximately USD 3.45 million) to 20 billion won, and further increase to 50 billion won by 2028. Moreover, the grace period for listed companies receiving a delisting warning will be halved from the existing four years, accelerating the delisting process and ensuring a more efficient market that prioritizes competent enterprises over those failing to meet standards.
The drive to rejuvenate the South Korean stock market comes in the wake of a lackluster performance in 2024, largely attributed to the underwhelming results from dominant players like Samsung Electronics
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Thus, the introduction of these policies is aimed not only at addressing the structural inefficiencies that have plagued the Korean market for years but also at directly confronting the lax delisting criteria that have previously allowed poorly performing companies to dominate market resources unwarrantedlyThis ineffectiveness has considerably hindered the overall efficiency of capital allocation within the market.
In tandem with the increased market capitalization requirements, there will also be a gradual increase in the minimum revenue requirements for companies with a market capitalization below 100 billion wonThe South Korean government plans to raise this revenue threshold from the current 5 billion won to a minimum of 30 billion won starting in 2029. The Financial Services Commission noted that “prolonged delays in delisting poorly performing firms not only lead to inefficient capital distribution but also severely damage market confidence and bear negative impacts on stock prices.” To effectively eliminate underperforming companies and contribute to a market that focuses on value enhancement, authorities are resolutely reinforcing these standards.
Historically, the minimal financial requirements for listings have failed to weed out “zombie companies” — enterprises that rely heavily on external support and lack sustainable self-generating capacity
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Data from the Financial Supervisory Service indicates that over the past decade, not a single stock has been delisted due to failing to meet the market capitalization or revenue benchmarksReports further reveal that as of 2024, 62 companies constituting the Kospi index and 137 from Kosdaq do not meet the enhanced criteria, which corresponds to approximately 7% - 8% of each market's total compositionSuch startling statistics starkly underscore the systemic issues within the South Korean market, highlighting the pressing need for reform.
The South Korean government has consistently placed a high priority on maintaining market stability within its capital market regulation framework, with a particular focus on preventing substantial price volatility post-initial public offerings (IPOs). Official declarations have indicated that by 2026, companies planning to go public will need to allocate at least 40% of their shares to institutional investors with a commitment to a lock-up period
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This strategic move aims to mitigate the risk of large stock inflows that could lead to selling pressure and abrupt price declinesBy giving preferential allocations to investors pledging long-term commitments, the government seeks to foster a culture of long-term investment, reducing short-term speculative behavior that can destabilize the market and create a healthier and more predictable environment for both companies and investors.
Moreover, regulatory bodies will enhance the qualification criteria for institutional investors seeking to participate in the IPO subscription processPast occurrences of excessive investor enthusiasm have, at times, resulted in unreasonable pricing that undermines the fairness and stability of the marketReforms will start being implemented incrementally from April, with some requiring additional preparation time to fully roll out by July
The Financial Services Commission acknowledged that despite the growth of the number of listed companies and total market capitalization, the overall quality of this growth has significantly declinedComparatively, over the past five years, the increase in the number of South Korean listings has outpaced that of the US and Japan; however, the MSCI Country Index for South Korea has only demonstrated a mere 3.8% increase, vastly trailing behind the at least 65% gains witnessed in the same period by developed markets like the US and JapanThis suggests that although the South Korean stock market has expanded in size, the quality of that growth and the corresponding investment returns have been less than satisfactory.
Against this backdrop, the current series of reforms signals a proactive stance taken by the South Korean government to elevate the standards of its stock market and enhance the competitive edge it possesses
