New rules for the KONEX are aimed at boosting liquidity and trust in the market, while also making fundraising easier for SMEs and venture companies.
South Korea’s FSC (Financial Services Commission) has introduced new rules to reform the KONEX (Korea New Exchange) in a bid to help more SMEs and venture firms grow faster.
The KONEX was launched in July 2013 as an exchange for SMEs too small to list on the KOSDAQ. As of the end-2018, 153 companies worth a combined capitalisation of KRW 6.3 trillion (USD 5.6 billion) are listed on the KONEX, but despite this growth, the FSC says low liquidity and the lack of price discovery function have prompted a need for reforms.
“Against this backdrop, the FSC intends to revitalise the role of KONEX as a springboard for SMEs & venture companies to grow further and a platform for venture capital investors to exit and re-invest,” the FSC said in a statement.
Under the new rules, the FSC will allow KONEX-listed firms to raise funds through crowdfunding, an activity that was previously limited only to non-listed SMEs and small public offerings. Regulations that cap discount rates on newly-issued shares will also be loosened for KONEX-listed firms, and external audit standards will be eased or tailored for to reduce their regulatory burden.
Part of the plan is to exempt professional investors from the minimum deposit requirement, while also lowering the minimum deposit amounts for general investors. Distribution of shares will also be introduced as a requirement to remain listed on KONEX.
Additionally, KONEX-listed companies will be required to disclose more information to better protect investors. The number of data items subject to disclosure rules will be increased from 29 to 35.
According to the FSC, the KONEX revitalisation plan is intended to facilitate fundraising for SMEs and venture companies, while also boosting liquidity and investor trust in the KONEX market.
Strengthening the KONEX’s role in nurturing SMEs and venture companies will help them move to KOSDAQ, said FSC Chairman Choi JongKu.