Starting August 3, any listed company seeking to separately list a subsidiary created through physical division on the stock exchange must obtain approval from the parent company’s general shareholders’ meeting. During the voting process, the so-called “3% rule” will apply, limiting the voting rights of the largest shareholder and related parties exceeding 3% to a maximum of 3%. Failure to meet this requirement will, in principle, prohibit the listing. The Financial Services Commission announced on the 31st at its regular meeting that it had approved amendments to the Korea Exchange’s listing and disclosure regulations to improve the dual listing framework.
The finalized amendments were prepared following approximately one week of formal public comment, based on the provisional plan announced on July 6. The FSC did not accept industry requests for exemptions, such as “waiving shareholder approval based on the elapsed time since the physical division” or “excluding the 3% rule.” It also did not adopt proposals from the investment sector for “mandatory shareholder approval for all dual listings” or the “Majority of Minority (MoM)” voting method. Instead, the FSC maintained the original proposal to preserve the system’s core purpose of protecting minority shareholders and limiting controlling shareholder influence.
The FSC determined that reasonable differential application was necessary, considering predictability and discount concerns for parent company minority shareholders. Accordingly, subsidiaries created by spinning off a parent company’s business division must mandatorily obtain parent company shareholder approval before listing, while shareholder approval is only recommended for other general dual listing scenarios. Additionally, low-weight subsidiaries—where the subsidiary’s assets, three-year average revenue, and operating profit are all less than 10% of the parent company’s—are excluded from the shareholder approval review. However, this exception does not apply to significant subsidiaries whose expected enterprise value exceeds 10% of the parent company’s value.
The 3% rule, the core mechanism of the shareholder approval voting process, limits shareholders holding more than 3% of shares to exercising voting rights only up to 3%. The largest shareholder’s voting rights are restricted by aggregating shares held by related parties. For shareholder approval to be recognized, the resolution requires a majority of attending shares in favor, plus approval from at least one-quarter of total issued shares, calculated after excluding the excess portion above 3%. The FSC explained that applying an ordinary resolution method would allow the controlling shareholder’s will alone to pass the approval process, diluting the reform’s purpose of protecting minority shareholders. It also considered that the MoM method has no precedent of adoption in South Korea.
Rules governing board operations have actually been strengthened. The parent company’s board of directors must mandatorily establish a special committee of at least three members to review the dual listing. The initial provisional plan offered a choice between “an independent director serving as chair” or “independent directors and independent external members comprising at least two-thirds.” However, the final version strengthened the requirement by mandating both conditions: the chair must be an independent director, and at least two-thirds of committee members must be independent directors or independent external members.
Conversely, corporate disclosure burdens have been partially eased. When disclosing the board’s final resolution, the requirement to disclose individual directors’ opinions has been changed to disclosing only the board’s overall voting result. For low-weight subsidiaries that did not undergo shareholder approval, only the fact and the subsidiary’s relative weight need to be briefly disclosed. The introduction of electronic voting during shareholder approval votes has been adjusted from mandatory to recommended, and Real Estate Investment Trusts (REITs) have been explicitly excluded from dual listing regulations.
From the implementation date of August 3, the board of a parent company pursuing a dual listing must fulfill five procedural obligations before deciding on the subsidiary’s listing. Specifically, these are: ▲ shareholder impact assessment, ▲ preparation of shareholder protection measures, ▲ shareholder communication or shareholder approval vote, ▲ board resolution and notification to the subsidiary, and ▲ disclosure of related information. If a shareholder approval vote was not conducted, the reason must also be disclosed. These procedures apply equally when a domestic subsidiary lists on an overseas stock exchange. If the board violates these obligations, penalties of up to 1 billion won (approximately $696,088) may be imposed, or trading may be suspended for one day.
The Korea Exchange’s listing review threshold will also be significantly raised. During the listing review process, the exchange will strictly examine the subsidiary’s operational and managerial independence, the parent board’s fulfillment of the five obligations, and the level of minority shareholder protection. If the subsidiary’s revenue or purchases depend on the parent company for 50% or more, operational independence is presumed not to be met. For physical division subsidiaries, listing becomes fundamentally impossible without shareholder approval, while general subsidiaries that fail to obtain shareholder approval will face stricter individual review of their shareholder protection measures.
Meanwhile, some point out that this tightening of dual listing regulations has caused a sharp contraction in the IPO market. According to the Korea Exchange, K-Bank was the only company to newly list on the KOSPI market through July this year—the lowest figure in 25 years since 2001. Including new listings on the KOSDAQ market, the total stands at 30, the lowest level in six years since 2020. This was significantly influenced by major conglomerate affiliates—such as LS Group’s Essex Solutions and Netmarble’s Netmarble Neo—suspending their listing schedules due to concerns about conflicting with the authorities’ strengthened standards.
The FSC plans to periodically update dual listing guidelines based on actual cases of parent board obligation fulfillment and exchange review cases even after implementation. An FSC official stated, “We will continuously supplement the system to enhance predictability for companies and investors and improve operational rationality.”