[1] Legal nature of the listing regulations of securities established by an Exchange established with the permission of an Exchange under the Financial Investment Services and Capital Markets Act, and in cases where a specific provision of the listing regulations of securities can be deemed null and void because of its illegality, the purport of Article 390(2)2 of the same Act that provides that the matters regarding delisting standards and delisting shall be included in the listing regulations of securities, and whether the company subject to delisting's right to participate in the process of examining whether to delisting should

[2] Where Gap Exchange's "Listing Regulations on the KOSDAQ market" established under the Financial Investment Services and Capital Markets Act provides that a company subject to the substantive examination of listing eligibility shall be determined by taking into comprehensive account the continuity of the company, transparency in its management, and soundness in the KOSDAQ market when it is confirmed through public disclosure, etc.; however, in a case where Eul corporation, upon the result of the substantive examination of listing eligibility under the above provisions, claimed that the examination items of the above provisions were not specific and did not sufficiently guarantee the corporation's procedural participation right, and sought confirmation of invalidity of the delisting decision, the case affirming the judgment below holding that the above provisions cannot be deemed as invalid, and that there was no violation of law to the extent that it should be invalidated, and that there was no procedural violation of the law that does not guarantee the corporation's procedural participation right, such as the corporation's right to state

[1] The Securities Listing Regulations established by an Exchange established with the permission of an Exchange under the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) are self-governing regulations established by the Capital Markets Act to delegate the matters autonomous to an Exchange. In relation to a listing contract, the contents of a contract prepared in advance by an Exchange, which is a party to a contract, to enter into a listing contract with a large number of companies applying for listing, have the nature of a standardized contract.

However, as can be seen from the fact that the formation of fair prices of securities and exchange-traded derivatives, the trade thereof, and the stability and efficiency of other transactions are for the existence of the Exchange, the Exchange has a high level of public interest. Moreover, the Securities Listing Regulations, based on the provisions of the Financial Investment Services and Capital Markets Act, have a practical normative character as a provision naturally applicable to all listed corporations and companies applying for listing. In light of such special characteristics, if a specific provision of the Securities Listing Regulations violates the concept of justice as it seriously violates the principle of proportionality or the principle of equity, or contains any provision contrary to the legislative purpose or intent of another Act by excessively restricting the rights of listed corporations that are guaranteed by other Acts, such provision is null

In particular, the Securities Listing Regulations include matters regarding listing standards and listing review of securities, as well as matters regarding delisting standards and delisting standards (Article 390(2)2 of the Capital Markets Act). This is intended to take measures to enhance market soundness and to protect potential large number of investors by discontinuing listing of a listed company if the company’s business transparency, financial standing, corporate governance, etc. However, since delisting may undermine the reputation of the company subject to delisting and cause damage to investors due to the loss of circulation of securities, the review of delisting should be conducted in a transparent and fair manner, and the company’s right to participate in the procedure should be fully guaranteed.

[2] Where “Listing Regulations on KOSDAQ” of an Exchange established pursuant to the Financial Investment Services and Capital Markets Act provides that a company subject to the substantive examination of listing eligibility shall be determined by comprehensively taking into account the continuity of the company, transparency in its management, soundness in the KOSDAQ market, etc. If it is confirmed through public disclosure, etc.; however, in a case where Party B, who was determined to delisting as a result of the substantive examination of listing eligibility pursuant to the aforementioned provision, claimed that the pertinent provisions did not sufficiently guarantee the corporation’s right to participate in the procedures, and sought confirmation of the delisting decision, the case affirming the judgment below that it is difficult to deem that the determination of the substantive examination of listing eligibility was not necessary to promptly determine whether it was subject to the substantive examination due to the nature of the circumstances where it is impossible to conduct the substantive examination of listing eligibility for all listed corporations, such as the disclosure of embezzlement and breach of trust, and the soundness of the KOSDAQ market, and that it is difficult to view that the aforementioned detailed examination of listing eligibility was not subject to the substantive examination of listing eligibility as an object subject to the substantive examination, and that it was not subject to be subject to the substantive examination guidelines.

[1] Articles 8-2(2), 373-2, and 390 of the Financial Investment Services and Capital Markets Act / [2] Articles 8-2(2), 373-2, and 390 of the Financial Investment Services and Capital Markets Act

[1] Supreme Court Decision 2007Da1753 Decided November 15, 2007 (Gong2007Ha, 1913) Supreme Court Decision 2015Da8797 Decided February 9, 2017

C&K International Co., Ltd. (L&WS Law LLC, Attorneys Jeong-jin et al., Counsel for the plaintiff-appellant)

Korea Exchange (Attorney Kim private school et al., Counsel for the plaintiff-appellant)

Seoul High Court Decision 2016Na2002473 decided July 15, 2016

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. The Securities Listing Regulations established by an Exchange established with the permission of an Exchange under the Financial Investment Services and Capital Markets Act (hereinafter “Capital Markets Act”) are self-governing regulations established by the Capital Markets Act to delegate the matters autonomous to an Exchange. In relation to a listing contract, an Exchange, which is a party to a contract, has the nature of a standardized contract, i.e., a contract prepared in advance by an Exchange to enter into a listing contract with a large number of companies applying for listing.

However, as can be seen from the fact that the formation of fair prices of securities and exchange-traded derivatives, the trade thereof, and the stability and efficiency of other transactions are for the existence of the Exchange, an Exchange has a high level of public interest, and the Securities Listing Regulations are naturally applicable to all listed corporations and companies applying for listing based on the provisions of the Capital Markets Act, and cannot be denied that they have a practical normative nature. In light of such special characteristics, if a specific provision of the Securities Listing Regulations violates the concept of justice as it seriously violates the principle of proportionality or the principle of equity, or contains any provision contrary to the legislative purpose or intent of another Act because it excessively restricts a listed corporation’s rights guaranteed by other Acts, such provision is null and void (see, e.g., Supreme Court Decisions 2007Da1753, Nov. 15, 2007; 2015Da8797, Feb. 9, 2017).

In particular, the Securities Listing Regulations include matters regarding listing standards and listing review of securities, as well as matters regarding delisting standards and delisting standards (Article 390(2)2 of the Capital Markets Act). This is intended to take measures to enhance market soundness and to protect potential large number of investors by eliminating listing of a listed company if corporate transparency, such as business operations, financial standing, corporate governance, etc. of a listed company, comes to fall short of corporate transparency. However, since delisting may undermine the reputation of the company subject to delisting and cause damage to investors due to the loss of circulation of securities, the review of delisting should be conducted in a transparent and fair manner, and the company subject to delisting’s right to participate in the procedure should be fully guaranteed.

2. As to the grounds of appeal Nos. 1 and 3

A. The lower court, on the grounds indicated in its reasoning, determined as follows.

1) In the event that a cause under each item of Article 38(2)5 of the KOSDAQ Market Listing Regulations (hereinafter “Listing Regulations”) arises, the Defendant shall determine an enterprise subject to the substantive examination of listing eligibility by comprehensively taking into account the following factors: (a) the continuity of the enterprise, transparency in its management, and soundness in the KOSDAQ market. In the reality where it is impossible to conduct the substantive examination of listing eligibility for all listed corporations, the Defendant’s policy needs to prescribe that an enterprise subject to the substantive examination of listing eligibility should be subject to the substantive examination by taking into account the continuity of the enterprise, transparency in its management, soundness in the KOSDAQ market, etc.

2) According to the “Standards Table for Real Examination of KOSDAQ Listing Eligibility” of the Guidelines for Real Examination of KOSDAQ Listing Eligibility providing detailed detailed items for the Examination of Listing Eligibility, a listed corporation as a listed corporation may sufficiently examine what aspects it should be subject to evaluation in the Real Examination of Listing Eligibility. This is because the Guideline for Real Examination of Listing Eligibility does not allocate marks on each item of examination because it is not easy to measurable due to the characteristics of the items assessed at the Real Examination, and it is not difficult to predict objectivity or estimate items of examination because it does not have been allocated marks. Therefore, on the ground that each item of examination has not been further embodied, it is difficult to deem that there was an error of law to the extent that it should be invalidated by making it invalid.

B. Examining in light of the legal principles as seen earlier, the lower court did not err by misapprehending the legal doctrine on the validity of the Securities Listing Regulations, thereby adversely affecting the conclusion of the judgment, on the grounds that Article 38(2)5 Item (b) of the Listing Regulations and the content of the above Table providing detailed items for examination of its substance are all valid.

3. Regarding ground of appeal No. 2

Based on the reasoning of the judgment of the court of first instance, the lower court determined that the Defendant’s failure to guarantee procedural rights, such as the right to submit opinions, in the stage of selecting a corporation subject to the substantive examination of listing eligibility, is against the concept of justice or has reached the degree of excessive restriction on the rights of a listed corporation, on the grounds that it is difficult to view that the procedure for selecting a corporation subject to the substantive examination of listing eligibility constitutes an act imposing disadvantages on the listed corporation, and that the regulations of the listing regulations of this case stipulate the right to attend and state opinions after the commencement of the substantive examination of listing eligibility, and the procedure for

In light of the circumstances that the listing regulations of this case sufficiently guarantee the right to participate in the procedure of the corporation subject to the substantive examination of listing eligibility and that the defendant's determination on whether to commence the substantive examination of listing eligibility needs to be promptly implemented, the lower court did not err by misapprehending the legal doctrine on the validity of the listing regulations of securities, thereby adversely affecting the conclusion of the judgment, in the process of selecting the corporation subject to the substantive examination of listing eligibility, which did not consider procedural errors in the conclusion of the

4. Conclusion

Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Jung-hwa (Presiding Justice)