South Korea: A Capital Markets Overview
South Korea’s Value-Up Initiative: A Turning Point for Reform and Trust Restoration
In 2025, South Korea’s capital markets staged a dramatic rebound. In the first half alone, the KOSPI surged 28% to reclaim the 3,000 mark, while corporate bond issuance (excluding financial bonds such as bank debentures) exceeded KRW75 trillion, setting a new record. The number of new listings and the overall size of public offerings also increased, revitalising the IPO market. Yet, macroeconomic conditions remain constrained. The Bank of Korea and the Korea Development Institute projected South Korea’s growth rate at 0.8–0.9% in 2025 and 1.5–1.6% in 2026, below potential, citing sluggish construction investment, project finance distress, and tariff risks originating from the United States as key downside factors. Against this backdrop of short-term rebound and structural vulnerabilities, the driving force for restoring confidence in the capital markets has been regulatory and legislative reform.
Listing and IPO regulations
In 2025, the Korea Exchange significantly tightened delisting requirements for both the KOSPI and KOSDAQ markets. The thresholds for market capitalisation and revenue were raised in stages, and companies receiving a disclaimer of opinion or adverse audit opinion now face immediate delisting. This reform seeks to block the prolonged survival of distressed firms and enhance overall market quality.
IPO regulations have also undergone substantive changes. Due diligence obligations now extend to all underwriters (previously limited to lead managers), side fees are prohibited, and institutional investors are given priority allocations for mandatory lock-up commitments, with the proportion of such commitments expanded to 40%. These measures are intended to curb short-term trading practices and reinforce a foundation for long-term investment.
The changes directly address a persistent criticism of the South Korean IPO market: that inflated valuations during the subscription process often collapse once trading begins, eroding investor confidence. By binding institutional investors through stricter lock-up requirements and spreading accountability among all underwriters, regulators aim to reshape incentives and ensure more balanced pricing.
Enhanced disclosure obligations have also been introduced. Newly listed companies are now required to submit quarterly reports immediately after listing, a step designed to close the information gap that historically existed during the early years of listing. In addition, disclosure on convertible bonds and bonds with warrants has been tightened with accelerated disclosure requirements to provide greater visibility on potential dilutive effects.
Amendments to the Commercial Act
Two rounds of amendments to the Commercial Act in the second half of 2025 represented the pinnacle of capital market legal reform. The July amendments expanded directors’ fiduciary duties to encompass not only the company but all shareholders (effective immediately), increased the minimum proportion of independent directors from one-quarter to one-third (effective 23 July 2026), and strengthened the so-called “3% rule”, which limits the voting rights of controlling shareholders and their affiliates to 3% of total issued shares in the election or removal of audit committee members (effective 23 July 2026). The amendments also mandated electronic shareholder meetings for large listed companies – those with total assets exceeding KRW2 trillion as of the end of the most recent fiscal year (effective 1 January 2027).
The September amendments further introduced mandatory cumulative voting for large listed companies (applicable from the first shareholder meeting convened for director elections following the Commercial Act’s effective date of 10 September 2026) and a separate election requirement for at least two audit committee members (effective 10 September 2026). Consequently, from 2027 onward, large listed companies will be required to hold electronic shareholder meetings and adopt cumulative voting, measures designed to curb controlling shareholder dominance and meaningfully expand minority shareholder participation.
These reforms are designed to tackle what investors often describe as the “Korea discount”, the chronic undervaluation of South Korean equities compared to peers. By strengthening independent director requirements, mandating cumulative voting, and limiting controlling shareholders’ voting rights in audit committees, the amended Commercial Act aims to shift the balance of power toward broader shareholder interests.
Market misconduct and digital assets
Enforcement against market misconduct has also been strengthened. A new account suspension mechanism was introduced for suspected unfair trading, penalties for violations of large-shareholding disclosure requirements were increased, and unlawful short selling became subject to account suspensions and restrictions on board appointments. These measures underscore a commitment to fair trading for both domestic and foreign investors. The emphasis on stronger sanctions is intended not only to deter misconduct but also to demonstrate South Korea’s readiness to meet the compliance standards required for inclusion in global indices such as the MSCI Developed Markets Index, a long-standing policy objective.
At the same time, initiatives such as the proposed (tentatively named) Digital Asset Basic Act, moves toward stablecoin regulation, discussions on spot crypto exchange-traded funds (ETFs), and the integration of fractional investment and alternative trading systems (ATSs) into the regulatory framework are expected to channel new sources of demand into the capital markets. The incorporation of digital assets into mainstream regulation is particularly significant, as it acknowledges the rapid growth of investor demand in this area while also imposing investor-protection safeguards. South Korea’s cautious but deliberate steps mirror developments in jurisdictions such as the United States, which approved spot bitcoin ETFs in early 2024, and the European Union, which introduced the Markets in Crypto-Assets (MiCA) framework.
Conclusion
In 2026, amid low growth and external uncertainties, these reforms will be tested for their ability to deliver tangible results, restoring market confidence, advancing shareholder-oriented governance, and providing a foundation for new growth industries. While tariff risks and other external variables are unlikely to be resolved quickly, regulatory reforms, though burdensome in the short term, are crucial for consolidating internal trust and broadening the investment base.
The ultimate success of these reforms will be judged by whether they can reduce the valuation gap between South Korean equities and global peers, attract more stable foreign investment, and foster a corporate culture that prioritises transparency and accountability. For legal practitioners, the challenge lies not only in interpreting the letter of the new rules but also in guiding companies and investors to align with their underlying purpose.
Accordingly, 2026 stands as a turning point for South Korea’s capital markets to balance regulation and innovation in pursuit of qualitative growth. The role of legal practitioners is to clearly communicate the intent of these reforms to market participants and to guide them in developing sound compliance strategies under the newly restructured framework.