KRX wants freedom from the gov’t

The nation’s sole securities exchange operator, Korea Exchange (KRX), may gain more freedom in its management as it may no longer be labeled a public institution.

Until now the government has been steadfast on keeping KRX as a public institution. However, a change of heart came to light after President-elect Park Geun-hye promised to review that policy in a recent interview with a local newspaper.

But there are concerns that allowing KRX to operate as a private company could lead to reckless management, in particular, fattening the wallets of employees and executives. That happened once before in 2008.

The Financial Service Commission made an official request to release KRX from its status as a public institution to the government’s steering committee on public institutions ahead of a committee meeting Thursday.

“We have delivered our view to the committee on the issue,” a high-ranking FSC official told the JoongAng Ilbo Monday.

Until now the FSC has repeatedly shot down KRX’s consistent requests to stop treating it as a public institution.

The KRX is actually a private company with brokerage firms and future exchange companies owning a two to four percent stake. However, due to its unique nature of having a monopoly on the stock market, it is classified as a public company.

By law, when revenue from a monopolized business exceeds half of a company’s revenue, that company is classified as a public institution. Roughly 78 percent of KRX’s revenues comes from stock exchange commissions and commissions it takes when companies are listed.

KRX has been demanding it be relieved of its public institution status because it burdens it with bureaucratic responsibilities, stifling oversight and holds it back.

“We can’t even imagine an aggressive management idea such as expanding overseas while being classified as a public institution,” said Kim Jong-soo, head of the KRX labor union.

“Our entire year is spent preparing for the Financial Service Commission, Financial Supervisory Service, the Board of Audit and Inspection as well as the National Assembly hearing,” Kim said. “After that we have to also prepare for the central government’s evaluation of public institutions.”

Some analysts would welcome the change.

“The KRX needs to break free from being a public institution,” said Lee In-hyung, senior researcher at Korea Capital Market Institute, “in order to compete with stock exchanges around the world.”

The problem is that the more freedom it gains from government’s oversight, the more reckless the institution could become.

In 2008 KRX was taken off the list of public institutions. The annual salary of its CEO immediately jumped from 360 million won to more than 800 million won.

That reckless management got it reclassified as a public institution in 2009, and the CEO’s salary went down again.

Since 2005, salaries for employees of KRX and its affiliates have risen sharply.

Among the 268 state-run institutions and companies, KRX’s salaries were tops last year at an average of 114.5 million won per year. The No. 2 and No. 3 spots were occupied by KRX subsidies: the Korea Securities Depository and financial IT solution firm Koscom.

“It will be much more difficult to oversee KRX if it is no longer a public institution,” said Sung Tae-yoon, a Yonsei University professor of economics. “It should be discussed after separating its oversight authorities and establishing a system that would prevent reckless management.”

By Yoon Chang-hee [ojlee82@joongang.co.kr]