Financial authorities have announced a plan to strengthen the removal of insolvent corporations from the stock market and to utilize the over-the-counter stock market (K-OTC) as a means to minimize investor damage. They plan to provide a separate market for investors holding stocks of delisted corporations to trade their shares in the over-the-counter market.
The issue is that K-OTC transactions have been shrinking for years. There are calls for more meticulous protection measures for victims affected by the delisting of listed companies.
The Financial Services Commission announced on the 21st of last month that it plans to raise the market capitalization criteria for delisting (KOSPI) from the current 5 billion won to 50 billion won, stating that companies receiving a negative audit opinion for two consecutive times will be removed immediately. They also decided to shorten the improvement period and review process.
Furthermore, the Financial Services Commission noted that it would utilize the Korea Financial Investment Association's over-the-counter stock transaction platform K-OTC to minimize potential investor damage due to the expansion of delistings. The plan is to continue transactions by transferring delisted corporations to K-OTC. The Financial Services Commission cited that "in the United States, continuity of transactions is ensured through OTC when a corporation is delisted," mentioning the OTC support case of the now-bankrupt Silicon Valley Bank (SVB) from March 2023.
However, unlike the actively trading over-the-counter market in the United States, investor interest in Korea's over-the-counter stock market is declining day by day. Up until the COVID-19 pandemic, the market maintained growth, but trading has continued to shrink since then. According to the Korea Financial Investment Association, the annual transaction volume of K-OTC plummeted from 1.39 trillion won in 2021 to 868.5 billion won in 2022, and then further decreased to 642.5 billion won last year.
This year, trading continues to decline. The average daily transaction amount of K-OTC decreased from 5.64 billion won in 2021 to 2.63 billion won last year, more than halving over three years. From January 1 to February 20, 2025, the average daily transaction amount is only 2 billion won. The average daily transaction volume also fell from 920,000 shares in 2022 to 610,000 shares last year, and this year it has plummeted to 410,000 shares. The K-OTC market capitalization, which reached 31 trillion won in 2021, has now halved to around 16 trillion won.
Given the situation, market participants are expressing concerns that the investor protection measures following delistings are inadequate. The group that primarily raises complaints consists of corporations listed on the KOSDAQ market, which are relatively smaller in terms of sales revenue. According to a simulation conducted by financial authorities based on strengthened delisting criteria, 137 corporations in the KOSDAQ market will be on the delisting list by 2024.
Within the market, there are calls for the government to provide more robust protection measures for victims affected by corporate delistings. A senior official at a KOSDAQ listed corporation stated, "While the transfer to K-OTC after a 7-day organized transaction is indeed better than the current structure where transactions essentially halt, the fundamental concern is that investor interest in the Korean over-the-counter market is too low," adding, "I hope the financial authorities will work to enhance the attractiveness of K-OTC."