Corporations that seek to list subsidiaries established through a physical split will now have to obtain approval at the parent company's shareholders meeting. The "3% rule," which limits controlling shareholders' voting rights, will apply to the vote.
The Financial Services Commission said on the 31st that it approved amendments to the Korea Exchange (KRX) listing and disclosure rules to improve the multiple listing system at a regular meeting. The revised rules and multiple listing guidelines will take effect starting on the 3rd of next month.
The final plan was confirmed based on a draft the Financial Services Commission and the exchange prepared after three public hearings in April and May and released in early July. During the comment period, the corporate sector asked for easing the parent company board's obligations and the exchange's review standards, while the investment industry argued that protections for general shareholders should be further strengthened.
The Financial Services Commission kept, as in the previously announced plan, the requirement for shareholder approval for subsidiaries created by physical split and the 3% rule, which were the key issues. A subsidiary resulting from a physical split must obtain approval from the parent company's shareholders meeting before listing, while for a general subsidiary, shareholder approval is recommended. Low-weight subsidiaries that account for a small portion of the parent company are excluded from the approval requirement.
In the shareholder approval vote, even shareholders who own more than 3% of equity can exercise voting rights only up to 3%. For the largest shareholder, voting rights are limited by adding up the stakes of related parties. For shareholder approval to be recognized, both a majority of the shares participating in the vote and at least one-fourth of the total issued shares must vote in favor.
The corporate sector demanded that the standard ordinary resolution method be applied, but the Financial Services Commission did not accept it, judging that if approval passes based solely on the will of the controlling shareholder, the system's purpose of protecting general shareholders could be weakened. The majority-of-minority (MoM) method proposed by the investment industry was also not adopted because there are no domestic cases of its use.
The independence requirements for the special committee that the parent company board sets up to review multiple listings were strengthened from the draft. An independent director must serve as chairperson, and at least two-thirds of the members must be independent directors or independent external members.
However, the disclosure burden on corporations was partially reduced. The parent company board's final for-or-against resolution will be disclosed only as the overall board decision, not as individual directors' opinions. If a low-weight subsidiary does not undergo shareholder approval, it is sufficient to briefly disclose that fact and the subsidiary's relative weight. The introduction of electronic voting is set as a recommendation, not a requirement, and real estate investment companies (REITs) are excluded from multiple listing regulations.
After the system takes effect, before deciding on a subsidiary's listing, the parent company board must carry out five procedures: ▲ shareholder impact assessment ▲ preparation of shareholder protection measures ▲ shareholder communication or a shareholder approval vote ▲ the board's for-or-against resolution and notice to the subsidiary ▲ disclosure of related matters. If a shareholder approval vote was not held, the reason must also be disclosed. The same procedures apply when a domestic subsidiary lists on an overseas exchange.
In the process of reviewing a subsidiary's listing, the exchange plans to examine the independence of business and management, whether the parent company board fulfilled its obligations, and the level of protection for general shareholders. For subsidiaries created by physical split, listing will be difficult without shareholder approval, and for general subsidiaries, if approval is not obtained, a stricter review of shareholder protection measures will follow.
The Financial Services Commission (FSC) said, "Even after implementation, we plan to periodically update the multiple listing guidelines based on actual cases of the parent company board's fulfillment of obligations and the exchange's reviews, to enhance corporations' and investors' predictability and the rationality of operations."