The Korean stock exchange operator is expected to do away with stock weighting cap rule as local markets are battered in virus panic.

The Korea Exchange (KRX) on Thursday embarked on the process of revising a new cap rule that was introduced last year to prevent the Kospi 200, the index of Korea’s top 200 equities, from being weighted too heavily on a certain stock –mostly Samsung Electronics.

It started taking opinions on amending the upper limit rule on the proportion of market capitalization in the Kospi 200 index and KRX 300 index. Upon consensus, it will remove the cap. The stock exchange operator is expected to finalize the decision by early May.

If the rule is removed, trade in market heavyweights such as Samsung Electronics Co. won’t be curtailed even the stock takes up more than 30 percent of total market cap.

KRX in June last year introduced a rule that caps the proportion of a certain stock’s market capitalization in main market indices including Kospi 200 and KRX 300 to 30 percent. If a company’s average market value exceeds 30 percent in one of the indices during a preset period of March to May or September to November, funds tracking the index must bring down their share in the company in June and December, respectively.

KRX in its proposal for amendment offered to remove the cap on the index for domestic use. But the cap will be applied to the indices that are tracked in overseas markets to meet different countries’ own cap rules.

The change comes after market’s growing call to remove the 30-percent cap, especially on Samsung Electronics whose share within the Kospi 200’s total market cap exceeded 33 percent in March despite the stock market rout. Market observers have warned the application of the 30-percent cap rule would trigger a massive sell-off of the stock and increase market volatility further.

By Park In-hye, Ahn Gab-seong, and Cho Jeehyun

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]