Korea Capital Market Institute

As the advancement of capital markets and corporate value-up policies gain momentum, the importance of the Stewardship Code, which encourages responsible investment by institutional investors, is growing significantly. The Stewardship Code serves as a set of guidelines for institutional investors to actively engage in enhancing the long-term value of investee companies for the benefit of their clients and beneficiaries, moving beyond the role of mere shareholders. It has established itself as a core institution in major global capital markets for improving corporate governance and restoring market trust. Since introducing the Stewardship Code in 2016, Korea has shown certain achievements, including a steady increase in the number of participating institutions and a gradual rise in institutional investors' exercise of opposing voting rights and shareholder engagement activities. However, despite these changes, the lack of a system to monitor code implementation means core principles are not being properly adhered to, limiting its effectiveness. Most participating institutions do not systematically disclose their fiduciary responsibility activities, and voting practices often amount to little more than formal disclosure. Moreover, current regulations, such as large shareholding reporting and restrictions on proxy solicitation, constrain institutional investors' active and cooperative shareholder activities. In the absence of incentives for diligent implementation or penalties for non-compliance, institutional investors' ‘rational indifference’ is becoming entrenched. Accordingly, this report proposes the following policy tasks to enhance the effectiveness of the Stewardship Code. First, the substantive nature of implementation plans should be verified from the registration stage, and the accountability of participating institutions should be strengthened through regular implementation evaluations and disclosure of results. Second, legal uncertainties surrounding shareholder rights exercise, such as regulations on large shareholding reports and proxy solicitation, should be resolved. Clear interpretation guidelines aligned with international standards should be established to guarantee institutional investors' legitimate shareholder activities. Third, pension funds like the National Pension Service must strengthen their role as key drivers of market-wide implementation. They should faithfully execute and disclose their own fiduciary responsibility activities while qualitatively evaluating and publishing the code compliance of their outsourced managers. Fourth, an efficient support system for code implementation should be established. This includes introducing principles for cooperative shareholder engagement, forming investor forums to support these principles, providing practical guidelines from policy authorities, and encouraging voluntary disclosure efforts by companies.

The Financial Services Commission and the Bank of Korea announced the principle of transitioning the benchmark interest rate system from CD rate, which has been widely used as a reference rate for financial transactions, to a KOFR-centered system. The Korean won interest rate swap sector, which primarily uses CD rate, has large transaction volumes and is closely linked to the use of KOFR in other financial transactions, making the activation of the KOFR OIS market a key task for transitioning to a KOFR-centered benchmark interest rate system. Establishing an OIS market based on risk-free benchmark rates was one of the most important tasks in the global benchmark interest rate reform process. Two turning points can be observed in the formation of the U.S. SOFR OIS market. First, medium- to long-term SOFR OIS transactions increased as CCPs' price alignment interest and discount rates transitioned to a SOFR basis. Second, SOFR OIS transactions surged after the implementation of the SOFR FIRST policy, and SOFR OIS became mainstream in the USD interest rate swap market, replacing LIBOR IRS. Unlike major countries, Korea did not previously have an OIS market or short-term interest rate derivatives market, so forming a KOFR OIS market requires meticulous policy design and active participation by market participants from the initial stage. To date, market infrastructure has been established to activate the domestic KOFR OIS market, including the listing of KOFR futures, the commencement of central clearing, and the application of KOFR to price alignment interest. Financial authorities have begun administrative guidance requiring major financial institutions to conduct at least 10% of their interest rate swap transactions as KOFR-linked transactions. Going forward, financial authorities need to focus on activating medium- to long-term KOFR OIS transactions and, while monitoring market formation, apply KOFR OIS to CCPs' discount rates for interest rate swap valuation at an appropriate time. Individual financial institutions need to explore strategies for utilizing KOFR OIS, considering that KOFR, being based on RP transactions, better reflects actual funding costs than CD rate. Additionally, they should prepare to apply KOFR OIS rates as derivatives valuation discount rates, considering future global alignment and the possibility of central counterparties transitioning their discount rates.

The global stablecoin market has grown rapidly since 2020, and discussions on introducing such assets domestically have also been active. Concerns remain regarding the financial soundness of issuers and the possibility of coin runs, but some argue that Korea should nevertheless explore potential use cases domestically, given the technological advantages and operational efficiency of stablecoins. Considering the shift toward the digital economy and the policy directions pursued by major economies, Korea will need to determine how to establish the regulatory framework on the stablecoins. Major economies abroad are quickly establishing institutional frameworks for stablecoins. The United States has laid the groundwork for activating the U.S. dollar-based stablecoin market through the passage of the GENIUS Act, while the EU has established a comprehensive regulatory framework for crypto-assets(including stablecoins) through MiCA. Japan, in contrast to the U.S. and EU, has adopted a unique approach under its Payment Services Act(PSA). By interpreting stablecoin issuance and redemption as fundamentally equivalent to payment service, Japan incorporated stablecoin regulation into its PSA rather than into digital-asset-specific legislation. Although the U.S., EU, and Japan each take distinct approaches, they show consistent attitudes toward user protection. Their core principles include maintaining 1:1 reserve assets, ensuring verification and disclosure of reserve assets, assigning clear responsibility for redemption obligations and procedures, and imposing prudential requirements on issuers. When introducing a stablecoin framework in Korea, it is necessary to include rules for reserve-asset requirements and management methods, minimum capital standards for issuers, adjustments to regulatory requirements based on issuance scale, and mechanisms to prevent coin runs so as to ensure market stability and user protection. Specifically, issuers should be required to maintain reserve assets at a level exceeding the outstanding stablecoin balance at all time, manage reserves only by highly liquid and low-credit-risk safe assets, and undergo periodic external audits to verify secure reserve management. It is also important to clearly define the issuer’s redemption obligations and publicly disclose transparent redemption procedures to ensure market credibility. Prudential regulations should ensure the issuer’s financial soundness, and capital requirements could be adjusted upward depending on the scale of issuance.

The brokerage services market in South Korea has experienced notable quantitative and structural transformations in recent years. This expansion, along with new market entrants and the extension of services to foreign markets, has intensified competition among brokerage firms. As a result, brokerage commission rates have declined sharply—by about 4 basis points for domestic equities and 17 basis points for foreign securities since 2017. Nevertheless, with commission rates already at historically low levels (around 4 bps for domestic and 8 bps for foreign securities as of end-2024), the effectiveness of additional price competition in attracting investors or increasing market share appears limited. Empirical evidence indicates that price competition benefits primarily large securities firms, yet even for them the marginal impact is expected to decline further. Their competitive advantage is largely derived from superior non-price factors such as marketing capacity, product diversity, service differentiation, and trading platform capabilities. In the longer term, strengthening non-price dimesions will be crucial for sustaining market position, as traditional price competition in Korea’s brokerage services market has largely reached its limits.

In Korea’s capital market, the importance of general shareholders’ meetings (AGMs) has grown significantly in recent years. This trend reflects several structural shifts: the rapid increase in individual investors (from 5.56 million in 2018 to 14.1 million in 2024, equivalent to 28% of the population), the rise of shareholder activism, and the growing number of institutional investors adopting stewardship codes (from 16 in 2017 to 247 expected by 2025). The emergence of proxy voting platforms and the wider use of electronic voting systems have also strengthened the influence of both individual and institutional shareholders. Moreover, the introduction of directors’ fiduciary duties toward shareholders under the amended Commercial Act has further underscored the importance of AGMs. Despite these developments, the operation of AGMs in Korean listed companies remains largely bound by outdated practices. AGM dates are excessively concentrated within a short period, and agenda notifications and disclosures are often made only at the statutory minimum deadline, leaving shareholders insufficient time to review key information. Persistent issues of information asymmetry are observed in dividend and executive compensation decisions—so-called “blind dividends,” perfunctory approvals of remuneration ceilings, and incomplete disclosure of compensation details. Additional shortcomings include a long gap between the record date and the AGM date, and the exclusion of affiliate-company compensation from consolidated disclosure. This report analyzes disclosures from 2,583 listed companies that held regular AGMs between February and March 2025, identifying structural weaknesses in voting, dividend, and remuneration decision-making processes. It proposes a set of policy measures aimed at improving the substantive quality of AGMs: promoting the dispersion of AGM dates, introducing mandatory electronic disclosure of AGM materials at least three weeks in advance, requiring the publication of voting results (for and against), and enhancing the disclosure of dividend and remuneration information to better protect shareholder rights. These institutional reforms are expected to enhance corporate governance transparency and market trust, ultimately contributing to the reduction of the “Korea discount” and to the long-term enhancement of shareholder value.

Open-end funds provide investors with a high level of liquidity. However, their structure, which guarantees redemptions regardless of the actual liquidity of the underlying assets, creates fairness issues among investors. Specifically, transaction costs arising from a particular investor's subscription or redemption are passed on to the remaining investors in the fund, diluting the value of their shares. This phenomenon can create a 'first-mover advantage', potentially leading to large-scale capital outflows, or a 'fund run', during market shocks, which in turn threatens the stability of the entire financial system. This structural vulnerability became particularly prominent internationally during the COVID-19 pandemic in 2020, which saw massive outflows from global bond funds. As a solution to this problem, this study focuses on 'Anti-Dilution Liquidity Management Tools (ADTs)', which require the investors causing the transactions to directly bear the costs incurred during the fund's subscription and redemption processes. ADTs are considered an effective means of preventing the dilution of remaining investors' share value, thereby enhancing fairness among investors and preemptively reducing the likelihood of a fund run. The primary types of ADTs include net asset value (NAV) adjustment methods, such as 'swing pricing', and fee-based methods, which impose separate charges like an 'anti-dilution levy' or 'subscription/redemption fees' on transacting investors without altering the NAV. The Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) strongly recommend that national financial authorities and asset management companies adopt and utilize ADTs to mitigate the structural vulnerabilities of open-end funds. Consequently, many countries have introduced related regulations. However, the degree of actual implementation varies. Countries such as the United Kingdom, Luxembourg, Hong Kong, and Singapore actively use ADTs, with a focus on swing pricing. France and Australia have introduced ADT regulations and are gradually expanding their use. Notably, the European Union (EU) has mandated that from 2026, funds must implement at least two liquidity management tools, with the inclusion of at least one ADT recommended. In contrast, despite having regulations in place, actual usage in countries like the United States and Japan remains minimal due to strong industry opposition. Current South Korean laws strictly regulate NAV calculation methods and restrict redemption fees to cases of 'redemption within a specific period', limiting their ability to function as intended to promote investor fairness and prevent fund runs in a crisis. A comprehensive discussion on introducing ADTs is necessary to enhance global regulatory alignment and strengthen the stability of the domestic fund market. However, a cautious approach with sufficient preparation and industry consultation is preferable to a hasty introduction. It is particularly important to thoroughly analyze potential practical difficulties and side effects, communicate closely with the asset management industry, and explore appropriate measures for investor education and information disclosure during the review process.