The Korea Exchange (KRX) should revise listing requirements to put more priority on future growth potential, while the Korea Securities Depository (KSD) needs to take measures to enhance risk management amid the continued increase of overseas investment, an academic review paper said Friday.
In a 98-page review of the two financial organizations commissioned by the Financial Information Society of Korea (FISK), the researchers said the KRX should seek measures that would essentially lower the entry barrier for the startups. The annual review was submitted to the Financial Services Commission.
"The KRX listing requirements should be revised to evaluate firms on their future growth prospects, a major change from the current practice whereby key determining criteria largely concern the firms' financials and previous performance," the report said.
The makeup of the listed firms should be more diverse, the report added, to bolster dynamism of the capital market in line with the ongoing industrial paradigm shift.
"The KRX should set operation objectives in tandem with the apparent industry-wide shift moving away from the traditional manufacturing to data and information technology. More efforts are required to improve the current underappreciated standing of the Korean stock exchange," it said.
The report gave positive reviews for the exchange's enhanced service for foreigners including investment information in English of listed firms and around-the-clock communication channels
Yet overall improvement is required in accounting transparency, it pointed out, to induce a greater volume of foreign investment and protect investor rights.
The KRX should come up with measures to limit fallout from mergers and acquisitions (M&As) lacking equity, adding investors could incur losses due to indiscriminate takeovers which in turn would undermine confidence in the Korean capital market.
As for the KSD, the report said the organization helped improve financial market vibrancy by reducing foreign securities transaction fees required in the U.S. and Hong Kong, regions favored by many Koreans.
But more detailed measure should be put in place to enhance risk management system stability amid the continued surge of overseas investment.
The report was commissioned to help boost transparency and efficiency in the management of the two influential financial organizations.
The KSD has been previously sanctioned by the Financial Supervisory Service for lax management involving domestic and overseas trading, notably the undue gains of a Eugene Investment customer in May 2018.
At the time, the account holder of a U.S. exchange-traded fund (ETF) gained 17 million won ($14,600) due to what later was concluded to be an apparent glitch in the online trading system.