"3% Rule Applies to Shareholder Approval"…Dual Listing Regulations to Take Effect from the 3rd of Next Month

The finalized regulatory plan for dual listings, which includes the introduction of the so-called "3% rule"—limiting the voting rights that can be exercised by controlling shareholders and related parties to 3% during the shareholder approval process required for dual listings—will go into effect starting August 3, 2026.

The Financial Services Commission announced on July 31 that it had approved partial amendments to the "Korea Exchange Listing Rules and Disclosure Rules" at its regular meeting as part of improvements to the dual listing system. This is the final plan established following the official public comment procedure for the dual listing regulations and guidelines announced on July 6.

According to the previously announced draft regulations, a parent company wishing to dual-list a subsidiary after a physical spin-off must obtain shareholder approval based on the 3% rule. Additionally, the new regulations impose obligations on the parent company board, such as conducting a shareholder impact assessment, implementing protection measures, and enhancing shareholder communication.

During the public comment period, the business sector requested the easing of obligations imposed on the parent company's board and a relaxation of the Korea Exchange’s dual listing standards. In particular, they argued for using an ordinary resolution method for shareholder approval instead of the 3% rule. In contrast, the investment sector called for stricter board obligations and reinforced dual listing standards, suggesting that the "Majority of Minority" (MoM) mechanism would be appropriate for shareholder approval.

The Financial Services Commission decided to maintain the 3% rule as the method for obtaining shareholder approval. It cited concerns that accepting ordinary resolutions might dilute the purpose of improving the dual listing system, which aims to protect general shareholders of the parent company, as well as the fact that there is not yet a case of MoM being implemented domestically.

Certain aspects were revised to reflect the opinions gathered. The requirements for the "independent special committee," which will pre-review and resolve the process for the parent company board’s fulfillment of its obligations in a dual listing, have been strengthened so that the chair must be an independent director, and at least two-thirds of the committee members must be independent directors or external independent members. The obligation to use electronic voting during shareholder approval has been eased from mandatory to recommended.

A representative at the Financial Services Commission stated, "Following the introduction of the guidelines, we will update them based on actual cases of parent company board compliance and reviews by the Korea Exchange, thereby improving predictability for both companies and investors."

This content was produced with the assistance of AI translation services.