Korea Seizes Exchange Operator After Dispute Over Management

By EVAN RAMSTAD

SEOUL -- The South Korean government on Thursday took control of Korea Exchange, the privately held company that owns and operates the country's stock exchanges, by invoking a monopoly law to designate it a publicly run firm.

The move escalates a nearly yearlong dispute between government officials and shareholders of the company, known as KRX, over its management.

It also represents a high-profile exception to President Lee Myung-bak's drive to reduce government involvement in the economy, which has included the privatization of state-run firms and elimination of regulations on details of South Korean life as minute as the price of beer and the type of heating that apartments can use.

The Ministry of Strategy and Finance announced the step as part of a broader revamping of state-run companies, which included the removal of 17 from the list of publicly run firms.
[The board at the South Korea exchange] Getty Images

The board at the South Korea exchange draws interest this week.

The ministry said the government can designate a company as publicly run if more than half of its revenue can be attributed to direct or indirect government aid. It added that the government indirectly supports KRX by granting it a monopoly on securities transactions and stock listings, which account for about 80% of the company's revenue.

The government said it won't take an investment stake in KRX, but it made no other statements about its future. A KRX spokeswoman declined comment after Thursday's announcement. The union that represents KRX workers criticized the action.

The Korea Stock Exchange, the largest of the three exchanges run by KRX, was privatized in 1998 after the government sold it to member brokerages and futures companies. In 2005, the company took control of the Korea Futures Exchange and Kosdaq, which trades shares of smaller-cap companies. Together, they form the seventh-largest bourse in Asia by market capitalization.

Today, its largest shareholder is Seoul-based Woori Investment & Securities, which owns 4.6%. Foreign-based brokerage firms own 10%. For much of last year, shareholders and managers considered the timing of a potential initial public offering for the company. Those plans were put on hold after the global economic crisis became worse in September.

The dispute with the government began early last year when the KRX board resisted some government officials' desire to name new senior executives. Afterward, the government's audit bureau and prosecutors launched investigations of the company, but they produced no accusations of wrongdoing.

Even so, talk of a government takeover of KRX has circulated for months. In recent weeks, exchange officials and shareholders expressed opposition to such a move in interviews with local media.
—Kanga Kong contributed to this article.

Write to Evan Ramstad at evan.ramstad@wsj.com

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