S Korea brings bourse under state control

South Korea's government yesterday brought the country's stock exchange under state control, a move that could derail Seoul's ambitions of becoming a regional financial hub and spark a legal battle with the bourse.

Financial authorities last year declared the Korea Exchange (KRX) an illegal monopoly and said the National Board of Audit and Inspection should supervise its accounts and management. However, this recommendation could not come into force until the finance ministry's ruling yesterday.

"It is designated as a quasi-governmental institution," the ministry said yesterday in a terse statement that didn't set out any of the implications for KRX.

Although South Korea insists its moves are one step shy of nationalisation, KRX has lambasted state intervention as a retrograde step that will scare off investors worried about government interference.

Britain's FTSE group last year promoted South Korea to developed country status, a decision which, analysts thought, would attract billions of dollars of foreign investment. The exchange said yesterday that it is considering a legal challenge to the government.

A source close to the dispute said the company's lawyers were investigating the legality of government taking a managerial role without first buying out a majority of the company's shares.

Under South Korean law, a company is classed as a monopoly if its revenues exceed 50 per cent of the total sector. However, in spite of becoming the lone player in 2005, by merging with the Korea Futures Exchange and Kosdaq, the stock exchange only fell foul of the authorities last year.

Much of the furore started when South Korean newspapers complained of the high salaries paid by a company unchallenged in the market place. The audit board also complained that a long-promised initial public offering from the bourse had never materialised.

The bourse's union has argued the government is seeking to take over the exchange so it can install political appointees into top positions.

But the government insists it is simply implementing the law.

"Turning the KRX into a public institution is apparently seen as a way for the current government to keep a tight rein on personnel, a move that will ultimately lead to a shake-up and 'parachute staff', dropped from the top into their jobs," Yu Heung-ryol, KRX union chief, told the Yonhap news agency.

The move to class KRX, which is mainly owned by Korean securities firms, as "quasi-governmental" comes at a tough time for an exchange which is looking to expand its foreign listings and itself expand abroad into smaller markets.

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