To address the phenomenon of the Korean stock market being undervalued compared to other countries, the Lee Jae-myung government has rolled up its sleeves to improve corporate governance. It announced plans to establish guidelines aimed at embedding the new order, which expands the fiduciary duty of directors from 'the company' to 'shareholders.' Additionally, the government intends to increase the punitive measures against unfair trading, including stock manipulation, aiming to introduce a one-strike-out system. A Bitcoin exchange-traded fund (ETF), which was scrapped last year, will also be permitted.
On the 22nd, the government announced its 'new government economic growth strategy,' which includes these contents. The Ministry of Economy and Finance presented the strengthening of sustainable growth as one of the goals of the Lee Jae-myung administration's economic policy for the next five years. This is aimed at shifting assets currently concentrated in real estate to productive areas, such as the securities market, through improvements in corporate governance and strong measures against unfair trading.
The government has decided to create guidelines to ensure the embedding of fiduciary duties for directors. This follows the passage of an amendment to the Commercial Act last month, which includes shareholders in the fiduciary duties of directors and will take effect upon publication.
The guidelines are expected to outline the procedures that directors must follow in the process of realizing their fiduciary duties. It serves as a kind of shield that reduces the risk of directors being sued. Kim Jae-hoon, Director General of Economic Policy at the Ministry of Economy and Finance, noted, "We will create standards for the court to determine (whether there is a violation of the Commercial Act) and this will include content to eliminate uncertainty." The guidelines are expected to be made public around the end of the year.
The government will also implement a one-strike-out system to expel those who engage in unfair trading, such as stock manipulation, from the market. If caught engaging in unfair trading, they will be barred from transactions involving stocks and other financial investment products and will face restrictions on the appointment of executives for up to five years.
Currently, the previously discretionary provision regarding the return of profits from short-term trading will be made mandatory. Accordingly, executives and major shareholders of listed companies must return any profits from buying and selling stocks within six months, regardless of whether they had prior information.
The Bitcoin exchange-traded fund (ETF) that was halted last year due to intervention by the Financial Services Commission is also being reinvigorated. The new economic growth strategy includes 'institutionalization of spot ETFs for digital assets.'
Last year, some asset management firms attempted to launch an ETF based on Bitcoin but were thwarted by the Financial Services Commission. At that time, the commission determined that Bitcoin did not meet the asset requirements for ETFs as stipulated by the Capital Market Act. However, as the President promised to allow spot ETFs that directly include virtual assets, the Financial Services Commission has changed its stance.
However, it remains uncertain whether virtual asset ETFs will gain investors' support. When making money with virtual assets, no taxes are paid; however, ETFs are subject to a 15.4% withholding tax on capital gains or increases based on the reference price. The Director General said, "Tax issues will be determined together after the introduction of virtual asset ETFs."
In addition, to expand the demand base for the stock market, the government will prepare a roadmap for inclusion in the Morgan Stanley Capital International (MSCI) developed countries index within this year. It will also introduce separate taxation on dividend income for companies that excel in dividends and gradually expand the target for retirement pension fund participation for small and medium-sized enterprises from fewer than 30 employees to 100 or fewer.
To create a virtuous cycle of funds, the government will also push for the segmentation of review criteria for special listing by innovative technology, restructuring the stock market considering the characteristics of growth stages, and introducing the cornerstone system (which pre-allocates new stocks to specific institutional investors under a lock-up condition).