Q&A with Jiwon Jung, Chairman & Chief Executive Officer, Korea Exchange

By: The WFE Focus Team Aug 2019

KRX is a member of the Sustainable Stock Exchange initiative (SSE) and has submitted data to the WFE’s annual Sustainability Survey over recent years. Can you tell us more about KRX’s Environmental, Social & Governance (ESG) policies?

In 2015, KRX opened an emissions trading market and joined the SSE Initiative, proving its keen interest in ESG issues. Thus far, each department has conducted ESG-related business. However, KRX is considering launching a dedicated unit in order to keep pace with the market’s growing interest in sustainability, and to take a macroscopic approach to ESG issues.

At the moment, a lack of robust data for ESG evaluation remains one of the biggest barriers to sustainable investing. Accordingly, KRX seeks to strengthen information provision of ESG products and listed companies.

In detail, we will establish standards for the ESG bond segment through which investors can access ESG bond-related information, such as usage of the raised funds and independent rating agencies’ evaluation reports.

Also, we will expand the scope of companies subject to governance disclosure obligations from KOSPI-listed companies with assets of KRW 2.0 trillion or more to all KOSPI-listed firms in 2021. At the same time, we will consider gradually adopting measures on 'environmental' and 'social' information disclosure.

On top of that, we aim to release a variety of benchmarks for sustainable investment including Carbon Efficiency Index and KOSDAQ ESG Index.

Technology is at the heart of KRX’s operations. Can you tell us about your technology strategy?

Today, information technology in the capital markets has reached an extremely advanced and sophisticated level. As a result, there seems to be no significant difference among exchanges in terms of IT infrastructure and technological advances.

Against this backdrop, we take the view that the focus should be on the business side - the exchanges’ qualitative growth whereby exchanges can grant investors greater market access, while beefing up their ability to cope with risks. How well the exchanges respond to such needs holds greater importance than ever.

To achieve qualitative growth through balanced development of its business and IT, KRX has implemented the Information Strategy Planning (ISP) project, and laid out the KRX IT System Roadmap.

In accordance with the KRX IT System Roadmap, KRX is preparing to develop its next-generation system. Aimed at achieving qualitative growth of both business and IT, the next-generation system is designed to enhance efficiency across trading, data distribution and clearing/settlement, and enable technology integration/standardisation.

Looking ahead to AOSEF 2020, what do you consider KRX’s role to be in the Asian capital markets ecosystem?

Within a relatively short period of time, KRX has successfully raised its main board, SME market and derivatives markets respectively into global top 10 levels.

Backed by this experience, KRX has been assisting Asian countries without exchanges in establishing their exchanges, while exporting IT systems to, or providing consulting services for, Asian countries.

The Hochiminh Stock Exchange (HOSE) is a case in point. KRX provided consulting services to Vietnam in the 1990s for establishing HOSE and assisted HOSE in becoming a full member of the WFE in 2013. We believe that close cooperation between KRX and Asian emerging markets will help contribute to further development of the WFE and the global exchange industry.

As the host for the 2020 AOSEF GA, KRX is preparing to provide opportunities for exchanges in the Asian region to share growth strategies and for the AOSEF and the WFE to strengthen mutual cooperation.

Please outline the three most important macro trends that you believe will impact the market infrastructure industry in 2019-2020.

First, compared with the standard listing requirements of traditional markets, more flexible and eased listing requirements are expected to be applied to markets for raising 'growth capital'.

We expect a new niche market to appear, meeting the needs of both high-growth companies having difficulty raising capital and investors in search of alternative investments.

In this regard, KRX continues its effort to support the growth of innovative companies and spur the virtuous cycle of venture capital investment, by way of providing an exceptional listing scheme to lower the listing barrier for promising tech companies that have secured technological prowess and growth potential and promoting the KONEX market as a capital-raising platform for early-stage SMEs and venture startups.

Second, the launch of an alternative trading system (ATS) stands a high chance in Korea, raising the possibility of market fragmentation.

On the one hand, the introduction of an ATS is anticipated to enhance market efficiency. On the other hand, it is questionable whether an ATS will actually bring about the desired effects to a relatively small market like Korea, particularly when compared with other advanced markets where multiple trading platforms have successfully taken root.

Given that an ATS is unlikely to differentiate from KRX in light of service offerings, the emergence of multiple trading platforms may result in the absence of market oversight and the complexity of clearing/settlement, thereby increasing social costs. With this in mind, we will carefully monitor how the developments surrounding the creation of an ATS in Korea unfold, and map out effective measures to cope with a competing trading platform to emerge.

Lastly, we see a growing possibility that cloud computing and blockchain technologies will bring seismic changes to the centralised trading system that has been in place for the past decades.

While cloud computing and blockchain technologies still need to evolve further, KRX focuses on R&D and technology verification - currently underway via a separate unit - in a bid to take a leading role in embracing the upcoming critical changes in the capital markets ecosystem.