As the financial authorities recently released guidelines imposing strict shareholder protection duties on listed companies pursuing "dual listings (split listings)," the Korea Exchange (KRX) announced details that specify the criteria for imposing listing contract penalties.
The financial authorities decided to impose up to 1 billion won in listing contract penalties if a parent company lists a subsidiary without fulfilling its shareholder protection duties. In response, the exchange decided to divide the base amounts for listing contract penalties by considering the size of listed companies, such as market capitalization. It also decided to apply aggravating or mitigating factors depending on the significance of the violations.
On the 8th, the exchange gave advance notice of revisions to the listing rules and enforcement detailed regulations for the main board and the KOSDAQ market. The revisions include details that specify in exchange rules the "dual listing guidelines" released by the financial authorities on the 6th.
The Financial Services Commission prepared guidelines that set out the obligations a listed company must follow when listing an unlisted subsidiary (dual listing) and the specific review criteria to assess them. In particular, regarding the parent company's shareholder protection duties, the guidelines require up to 1 billion won in listing contract penalties for breaches.
The enforcement detailed regulations the exchange put on advance notice include specifics on these listing contract penalties.
According to the draft revisions, the exchange plans to set base amounts for listing contract penalties by considering the size of the equity-listed company (parent company). It will then calculate the final amount by reflecting aggravating or mitigating factors such as the significance of the violations.
The size of the parent company will be assessed by its average market capitalization over the past year. For the main board, companies with an average market capitalization under 100 billion won have a base penalty of 200 million won; 100 billion won to under 100 trillion won, 500 million won; and 100 trillion won or more, 800 million won.
For KOSDAQ-listed companies, the base amounts are set at 200 million won for an average market capitalization over the past year of 50 billion won or less; 500 million won for over 50 billion won to 10 trillion won or less; and 800 million won for over 10 trillion won.
On top of that, penalties may be increased or reduced by 25% depending on the materiality assessment. "High" materiality applies when a listed company fails entirely to fulfill its obligations or submits false materials intentionally or through gross negligence. "Medium" applies when a listed company fulfills only part of its obligations, fails to disclose, or makes false disclosures. "Low" applies when only minor procedural violations or delays in fulfilling obligations exist.
For example, if a main board company with an average market capitalization over the past year of 100 billion won or more is found to have a "high" level violation, 25% is added to 500 million won, resulting in 625 million won.
However, although the financial authorities said that penalties of up to 1 billion won could be imposed, few listed companies are expected to actually face the maximum penalty.
First, for a 1 billion won penalty to be imposed on the main board, the average market capitalization over the past year must be at least 100 trillion won and a "high" level violation must occur. As of the 8th, only four corporations on the main board have a market capitalization of 100 trillion won or more: Samsung Electronics, SK hynix, SK Square, and Samsung Electro-Mechanics. In the KOSDAQ market, only three companies currently have a market capitalization of 10 trillion won or more: Alteogen, EcoPro BM, and EcoPro.
An exchange official said, "The timing for applying the dual listing guidelines released by the financial authorities is still undecided."