To eliminate the long-standing "Korea discount" that has plagued the market, the Korean government is preparing to deploy a reform "trump card" - mandatory cancellation of corporate treasury stocks.

Recently, Park Hong Bae, a lawmaker from Korea's ruling Democratic Party, revealed in an interview that the Korean National Assembly is highly likely to pass a key bill by the end of this year that would force listed companies to cancel their held treasury shares.

He emphasized that this legislation is the party's "top priority that cannot be delayed." Bill details will be finalized before submission to the National Assembly's standing committee in November, with a final vote expected at the plenary session in December.

This reform expectation has become a key driver pushing Korean stocks higher. Today, Korea's composite stock price index KOSPI rose as much as 1%, bringing its year-to-date gains to 44%, the best performance among major global indices.

The Korean government's ambitious target of "KOSPI 5000 points" means the index needs to rise another 45% from current levels, with treasury stock cancellation viewed as an important step toward achieving this goal.

**Reform Blade Targets "Dormant" Assets**

Treasury stocks - shares that companies repurchase and hold from the open market - are typically viewed as temporary tools in many markets, eventually cancelled to enhance shareholder returns. However, in Korea, they are often held indefinitely.

"The general consensus among investors is that Korea's treasury stock system makes no sense," ruling party lawmaker Park Hong Bae stated directly in the interview. These shares have no voting rights nor dividend entitlements, but their existence increases total outstanding shares, directly depressing key valuation metrics like earnings per share (EPS).

According to estimates by Daishin Securities analyst Lee Kyung-yeon, treasury stocks among KOSPI-listed companies currently represent about 3.1% of the index's total market capitalization. She projects that if these shares were mandatorily cancelled, it could boost listed companies' earnings per share by an average of 3.2%.

**Chaebols Become Focus of Attention**

Korea's large corporate conglomerates (chaebols) are major holders of treasury stocks. These shares can be used as tools to consolidate controlling families' management rights during critical moments.

For example, when facing external potential acquisitions or proxy battles, companies can sell treasury stocks to friendly parties, thereby quickly increasing their camp's voting power.

Data shows some chaebol subsidiaries hold staggeringly high proportions of treasury stocks. Reportedly, Lotte Group holds treasury stocks representing 32.5% of its total outstanding shares, while SK Group's ratio reaches 24.8%.

While such operations are compliant under existing frameworks, they have long been criticized by global investors as sacrificing minority shareholder interests and representing a major cause of the "Korea discount."

**Market Reactions Divided: Opportunities and Risks Coexist**

Facing the approaching regulatory storm, Korean market reactions show polarization.

Some companies choose to proactively align with reform trends. For example, LG Group pledged in August to cancel all its held treasury stocks by sometime next year, a move that won positive investor evaluation.

However, not all companies welcome this development. Some enterprises have reportedly raised objections, arguing this legislation would severely weaken their ability to defend against hostile takeovers, exposing them to greater risks in capital markets.

Professional analysts also see the dual nature involved. CLSA Securities Korea Ltd. analyst Jongmin Shim noted that if the bill passes, it "would greatly boost investor sentiment and help narrow the 'Korea discount.'"

But he simultaneously warned that hasty mandatory enforcement could bring unexpected negative consequences. If companies feel their defensive capabilities are weakened, they might seek other ways to prevent acquisitions, such as constructing complex cross-shareholding structures or issuing convertible bonds - methods that could equally damage shareholder value.