Tougher standards for the KRX

The guidelines for whether a company should be listed or removed from the stock exchange market must be strict and fair because the action can affect the wealth of a multitude of investors in the country.

But serious questions have been raised about the Korea Exchange’s selection of the officials who decide the fate of a corporate stock.

One official surnamed Kim stands accused of demanding 300 million won ($270,000) in exchange for voting to keep a company on the stock exchange. Another official surnamed Cho is suspected of pocketing 20 million won by promising to lobby to get the respective companies on the list. Both have been charged without detention.

The responsibility for this kind of malpractice and corruption belongs first and foremost to the Korea Exchange for hiring such unqualified and unethical personnel.

The system used to decide whether a stock should be removed from the bourse was first introduced in February 2009. A stock can be denied a chance for an IPO when the company’s balance sheet becomes questionable, with accumulated deficits eroding the paid-in capital.

The problem is that the company’s exact financial status may be unverifiable. At that point, the KRX organizes an eight-member evaluation committee, from a pool of 29 candidates, who evaluate firms for possible delisting.

But the criteria for how committee members are selected is unclear. In addition, member selection is the decision of the head of the stock division at the KRX, allowing room for unqualified members to be selected. A bad appointment could led to the wrong company being saved or removed from the list, which could eventually open the door to lobbying and corruption.

Meanwhile, some insiders say brokers are active in petitioning against delistings. But a company that uses bribes to remain on the exchange can incur bigger losses for investors when the company eventually goes belly up.

The KRX still keeps the list of evaluation committee members confidential but market players say that everyone knows who’s who.

The official surnamed Kim turns out to have been employed by an accounting firm whose business was suspended for six months for false accounting practices. It wasn’t until a month after the suspension that the KRX finally crossed his name off of the committee members’ list.

The KRX must enforce tougher standards to do its job effectively as well as transparently.