Starting in Jan., the Korea Financial Investment Association will temporarily support transactions of delisted corporations' shares through the Korea over-the-counter market (K-OTC). In step with this, participating securities firms are sequentially moving to overhaul their internal rules, including trading methods, for transactions of delisted corporations' shares.
For example, Mirae Asset Securities announced that the revised "K-OTC investor precautions," updated on the 9th, will take effect on Jan. 2. The precautions newly include methods for receiving quotes and calculating reference prices following the creation of the delisted corporations section.
In Jan. this year, as a follow-up to the financial authorities' "plan to improve the delisting system," the association created a delisted corporations section within K-OTC. This is a measure to support, for six months, transactions of shares of corporations delisted from KOSPI and KOSDAQ to protect investors. As stricter delisting criteria raise the possibility that more corporations will be pushed out of the market, the aim is to offer retail investors who hold related shares a platform to easily transact even after delisting.
Beginning next year, issues delisted each month will be newly designated in the K-OTC delisted-designated corporations section in the following month. To be designated, they must meet certain conditions, including: ▲ the most recent settlement of account financial statements carry an unqualified or qualified audit opinion (excluding qualifications due to scope limitations) ▲ there are no problems with the transfer of shares ▲ they are unrelated to issues affecting corporate continuity, such as defaults.
Designated issues can be traded on home trading systems (HTS) and mobile trading systems (MTS) of securities firms that offer K-OTC services.
The new K-OTC delisted share trading service is expected to be offered by all existing participating securities firms. Currently, 35 domestic and foreign securities firms, including Mirae Asset Securities, Meritz Securities, and Kiwoom Securities, participate in the K-OTC market.
The reference price for delisted issues is set at the lower of the arithmetic average of the closing prices on the final transaction-formation day before delisting and the final three transaction-formation days before delisting. On the first trading day, a price limit band of ±30% from the reference price applies, and quotes can be received within that range.
After six months, transaction support ends, but for corporations the association deems appropriate to continue trading, it plans to keep supporting transactions through the designated corporations section.
However, as the K-OTC market has been sluggish in recent years, concerns are being raised about market stability and the effectiveness of the support. The K-OTC's average daily transaction value, which exceeded 5.6 billion won in 2021, was cut in half to 2.63 billion won last year.
This year (Jan. 2–Dec. 15), the average daily transaction value fell a further 22% to 2.042 billion won. The number of traded issues also decreased from 137 at the start of the year to 127.
In the revised notice announced last week, Mirae Asset Securities also explained, "The K-OTC market is a minimally regulated market, and the fact that an issue is registered in this market does not guarantee that it is a high-quality corporation, so investment decisions should take this into account."
In this regard, to bolster market trust and protect investors, in Sept. the association revised the implementing detailed rules by specifying matters determined by its chair for corporations applying for deregistration from K-OTC. Related corporations must grant investors an opportunity to sell their shares through a public method before applying for deregistration, and, as of the deregistration date, the largest shareholder and others must hold at least 75% of the total number of issued shares of the issue.
A person in the financial investment industry said, "Because transactions of delisted shares are a follow-up to the system improvement plan, I understand that K-OTC-participating securities firms are reflecting this across their systems," but added, "Supplementary measures are also needed to enhance effectiveness, such as activating transactions."