Serious concerns regarding announcement of dual listing guidelines - Reiterate MoM requirement for investor protection
The Financial Services Commission (FSC) and the Korea Exchange (KRX) finally announced the dual listing guidelines on July 6th, 2026. The principle of prohibiting dual listings, along with the imposition of a duty to protect shareholders on the board of the parent company, is to be welcomed as a step forward for the protection of general shareholders. However, our Forum expresses serious concern on the following points. If implemented as announced, the guidelines may exacerbate the polarization of the Korean stock market, and thus immediate revision and supplementation are therefore required.
Regarding the 3% Rule
The dual listing guidelines recommend that, as a criterion for assessing the parent company's efforts to protect general shareholders, shareholder approval be obtained in accordance with the 3% rule under the Korean Commercial Code. This, it is stated, takes into account the position taken in the director’s duty of loyalty guidelines (announced by the Ministry of Justice in February 2026) that the Majority of Minority(MoM) requirement for general shareholders contains aspects that run counter to the principle of equal treatment of all shareholders. We disagree with such a notion. The 3% rule, however, gives rise to the following problems. Its adoption should therefore be reconsidered, and a MoM procedure for general shareholders should be introduced.
First, dual listing is the paradigmatic situation in which the interests of the controlling shareholder and those of the general shareholders conflict, making the protection of the latter all the more important. Under the dual listing guidelines, however, the general shareholders - the very subjects of that protection - find their voting rights capped at 3%.
Second, the shareholder that suffers the greatest harm from the 3% voting right limitation is the National Pension Service (NPS), which holds a stake of 3% or more in a large number of listed companies. The resulting loss ultimately falls upon all citizens.
Third, the 3% rule has the problem of fragmenting general shareholders. In situations of conflict of interest with the controlling shareholder, the harm suffered by general shareholders is dispersed across the class as a whole, giving rise to collective action and free-rider problems. The way to remedy this is to design the system so that the benefits, relative to the monitoring costs, increase for shareholders holding 3% or more. The dual listing guidelines have done the opposite: under them, even if a shareholder were to acquire an additional 3% or more and bear the monitoring costs personally, that shareholder would still be unable to influence the vote.
Fourth, it is contradictory to reject a MoM consent of general shareholders on the grounds of the principle of shareholder equality. The 3% rule is itself an exception to the principle of shareholder equality, and in that it restricts, uniformly and without distinction, even shareholders who are not parties to the conflict of interest, its egalitarian restriction reaches more broadly than the MoM requirement, which excludes only interested parties. The MoM requirement is a universal mechanism adopted by many jurisdictions, including the US, for the protection of shareholders' proportional interests.
Other Matters
Several problems have also been identified among the other detailed provisions of the dual listing guidelines.
First, while it is reasonable to require the affirmative vote of one-quarter of the total number of issued shares, irrespective of whether e-voting is permitted, this creates an asymmetry. The controlling shareholder is given an incentive not to introduce e-voting at all and to solicit proxies selectively only from approving shareholders, while the monitoring costs of dissenting shareholders rise. As e-voting is an indispensable means of reducing monitoring costs, e-voting should be made mandatory whenever general shareholder consent is sought.
Furthermore, the excessive differentiation and fragmentation of procedures has created considerable scope for evasion and the application of exceptions. If, for example, demerger-based dual listings are treated separately from dual listings affected by other means, companies will be able to circumvent shareholder protection efforts through business transfers or in-kind contributions. The guidelines relaxed the standards applicable where an acquired company is dual-listed, yet an acquisition likewise involves the expenditure of the parent company's funds, and the same conflict-of-interest issues arise. Given that the prospect of the parent company's general shareholders opposing a transaction that benefits them is exceedingly remote, excessively contrived system design should be eschewed, and parent company general shareholders should be protected under consistent standards.
Moreover, the guidelines provide that a special committee (SC) is sufficient if an independent director chairs the committee, or if independent directors and outside experts together constitute at least two-thirds of its members. Formal requirements of this kind, however, are insufficient, in our view. Given the reality that a controlling shareholder exists in most listed companies and that the very appointment of independent directors is dictated by the controlling shareholder, the SC should in principle be composed entirely of independent directors. In particular, even where an outside expert satisfies the formal qualification requirements of Article 542-8(2) of the Korean Commercial Code, the company itself is the appointing party, and the potential for abuse is accordingly high. The substantive independence of each independent director must be examined rigorously on a case-by-case basis.
Conclusion
If implemented as announced, the guidelines are likely to deepen the polarization of the Korean stock market still further. Korea's dual listing ratio is the highest in the world, and the resulting discount is severe. According to figures released by the FSC, Korea's dual listing ratio stands at 11.2%, an overwhelming first place - more than 220 times that of the United States (0.05%). According to our Forum's compilation of the equity holdings among listed affiliates of large business groups designated by the Fair Trade Commission, the dual listing ratio relative to the total market capitalization of the entire group reaches 22.3%.
The share prices of most parent companies that are dual-listed trade at a substantial discount relative to the combined value of their holdings in listed subsidiaries and affiliated companies. The existence of this discount is evidence that the general shareholders of parent companies are not being afforded adequate protection.
The polarization of the Korean market is a problem in which capital flows overwhelmingly into a small number of business companies in the semiconductor and AI sectors. Most of these companies, however, are classified as grand-subsidiaries, and, as the Fair Trade Commission's requirements concerning the shareholding thresholds for great-grand-subsidiaries apply, they give rise to no further concerns of dual listing. By failing to afford adequate protection to the shareholders of holding companies, intermediate holding companies, and parent companies with subsidiaries that may be dual-listed, the dual listing guidelines may accordingly produce the unintended consequence of exacerbating local market polarization. Immediate revision is required, including the introduction of a MoM consent requirement for general shareholders.
July 6th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Auditor, Hyeseop Sim
Serious concerns regarding announcement of dual listing guidelines - Reiterate MoM requirement for investor protection
The Financial Services Commission (FSC) and the Korea Exchange (KRX) finally announced the dual listing guidelines on July 6th, 2026. The principle of prohibiting dual listings, along with the imposition of a duty to protect shareholders on the board of the parent company, is to be welcomed as a step forward for the protection of general shareholders. However, our Forum expresses serious concern on the following points. If implemented as announced, the guidelines may exacerbate the polarization of the Korean stock market, and thus immediate revision and supplementation are therefore required.
Regarding the 3% Rule
The dual listing guidelines recommend that, as a criterion for assessing the parent company's efforts to protect general shareholders, shareholder approval be obtained in accordance with the 3% rule under the Korean Commercial Code. This, it is stated, takes into account the position taken in the director’s duty of loyalty guidelines (announced by the Ministry of Justice in February 2026) that the Majority of Minority(MoM) requirement for general shareholders contains aspects that run counter to the principle of equal treatment of all shareholders. We disagree with such a notion. The 3% rule, however, gives rise to the following problems. Its adoption should therefore be reconsidered, and a MoM procedure for general shareholders should be introduced.
First, dual listing is the paradigmatic situation in which the interests of the controlling shareholder and those of the general shareholders conflict, making the protection of the latter all the more important. Under the dual listing guidelines, however, the general shareholders - the very subjects of that protection - find their voting rights capped at 3%.
Second, the shareholder that suffers the greatest harm from the 3% voting right limitation is the National Pension Service (NPS), which holds a stake of 3% or more in a large number of listed companies. The resulting loss ultimately falls upon all citizens.
Third, the 3% rule has the problem of fragmenting general shareholders. In situations of conflict of interest with the controlling shareholder, the harm suffered by general shareholders is dispersed across the class as a whole, giving rise to collective action and free-rider problems. The way to remedy this is to design the system so that the benefits, relative to the monitoring costs, increase for shareholders holding 3% or more. The dual listing guidelines have done the opposite: under them, even if a shareholder were to acquire an additional 3% or more and bear the monitoring costs personally, that shareholder would still be unable to influence the vote.
Fourth, it is contradictory to reject a MoM consent of general shareholders on the grounds of the principle of shareholder equality. The 3% rule is itself an exception to the principle of shareholder equality, and in that it restricts, uniformly and without distinction, even shareholders who are not parties to the conflict of interest, its egalitarian restriction reaches more broadly than the MoM requirement, which excludes only interested parties. The MoM requirement is a universal mechanism adopted by many jurisdictions, including the US, for the protection of shareholders' proportional interests.
Other Matters
Several problems have also been identified among the other detailed provisions of the dual listing guidelines.
First, while it is reasonable to require the affirmative vote of one-quarter of the total number of issued shares, irrespective of whether e-voting is permitted, this creates an asymmetry. The controlling shareholder is given an incentive not to introduce e-voting at all and to solicit proxies selectively only from approving shareholders, while the monitoring costs of dissenting shareholders rise. As e-voting is an indispensable means of reducing monitoring costs, e-voting should be made mandatory whenever general shareholder consent is sought.
Furthermore, the excessive differentiation and fragmentation of procedures has created considerable scope for evasion and the application of exceptions. If, for example, demerger-based dual listings are treated separately from dual listings affected by other means, companies will be able to circumvent shareholder protection efforts through business transfers or in-kind contributions. The guidelines relaxed the standards applicable where an acquired company is dual-listed, yet an acquisition likewise involves the expenditure of the parent company's funds, and the same conflict-of-interest issues arise. Given that the prospect of the parent company's general shareholders opposing a transaction that benefits them is exceedingly remote, excessively contrived system design should be eschewed, and parent company general shareholders should be protected under consistent standards.
Moreover, the guidelines provide that a special committee (SC) is sufficient if an independent director chairs the committee, or if independent directors and outside experts together constitute at least two-thirds of its members. Formal requirements of this kind, however, are insufficient, in our view. Given the reality that a controlling shareholder exists in most listed companies and that the very appointment of independent directors is dictated by the controlling shareholder, the SC should in principle be composed entirely of independent directors. In particular, even where an outside expert satisfies the formal qualification requirements of Article 542-8(2) of the Korean Commercial Code, the company itself is the appointing party, and the potential for abuse is accordingly high. The substantive independence of each independent director must be examined rigorously on a case-by-case basis.
Conclusion
If implemented as announced, the guidelines are likely to deepen the polarization of the Korean stock market still further. Korea's dual listing ratio is the highest in the world, and the resulting discount is severe. According to figures released by the FSC, Korea's dual listing ratio stands at 11.2%, an overwhelming first place - more than 220 times that of the United States (0.05%). According to our Forum's compilation of the equity holdings among listed affiliates of large business groups designated by the Fair Trade Commission, the dual listing ratio relative to the total market capitalization of the entire group reaches 22.3%.
The share prices of most parent companies that are dual-listed trade at a substantial discount relative to the combined value of their holdings in listed subsidiaries and affiliated companies. The existence of this discount is evidence that the general shareholders of parent companies are not being afforded adequate protection.
The polarization of the Korean market is a problem in which capital flows overwhelmingly into a small number of business companies in the semiconductor and AI sectors. Most of these companies, however, are classified as grand-subsidiaries, and, as the Fair Trade Commission's requirements concerning the shareholding thresholds for great-grand-subsidiaries apply, they give rise to no further concerns of dual listing. By failing to afford adequate protection to the shareholders of holding companies, intermediate holding companies, and parent companies with subsidiaries that may be dual-listed, the dual listing guidelines may accordingly produce the unintended consequence of exacerbating local market polarization. Immediate revision is required, including the introduction of a MoM consent requirement for general shareholders.
July 6th, 2026
Korean Corporate Governance Forum
Chairman, Namuh Rhee
Auditor, Hyeseop Sim