Financial authorities will significantly tighten delisting requirements to speed up the removal of insolvent companies. In the market, expectations for improving the fundamentals of KOSDAQ are rising alongside concerns about an accelerated wave of exits.
Financial authorities unveiled plans to tighten delisting requirements centered on market capitalization and share price thresholds, stressing a "fundamental overhaul" of the KOSDAQ market. On the 12th, Vice Chair Kwon Dae-young of the Financial Services Commission (FSC) said at a related briefing, "We should have dealt with insolvent companies much earlier," adding, "To make a great leap forward into a market trusted by investors, faster and stricter removal of insolvent companies is needed."
In the market, some expect the new measures to be a turning point for restoring confidence in KOSDAQ. However, there is also notable caution that mechanical exits driven by price indicators could cause another distortion in the market. In particular, concerns are growing among investors over the appropriateness of the delisting criteria and the speed of their application.
◇ "Concerns that price and market cap thresholds could instead induce price distortion"
The core of the revamp is the acceleration of higher market cap thresholds and the creation of a new delisting rule for so-called "penny stocks" with a per-share price below 1,000 won. The delisting market cap thresholds originally set to rise in 2027 and 2028 from 15 billion won to 20 billion won and from 20 billion won to 30 billion won, respectively, have each been moved up by six months to June this year and January next year.
Starting in July, if a stock trades below 1,000 won for 30 consecutive sessions, it will be designated for monitoring, and if it then fails to exceed 1,000 won for 45 consecutive sessions within the following 90 sessions, it will be delisted immediately.
Experts point to the highly volatile "price indicators" as the biggest sticking point in the plan. Unlike objective figures such as earnings or capital impairment, share prices and market caps can swing widely in the short term depending on flows and sentiment. While there is a grace period of 45 consecutive sessions, the possibility cannot be ruled out that companies will dodge regulation through temporary rebounds via paid-in capital increases or by riding themes—so-called "tricks."
There are also concerns that corporations could become fixated on short-term share price defense rather than strengthening competitiveness in their core businesses. If actions to artificially prop up share prices are repeated to maintain listings, it could instead deepen market distortions and investor confusion.
A capital market researcher who requested anonymity said, "While there is broad market agreement on removing insolvent companies, if you make moving, subjective indicators the standard, corporations will at some point face the need to push up their share prices," adding, "In other words, it implies distorting market prices, and the government would effectively be leading that."
◇ Criticism of "uniform application that fails to consider industry cycles and market crowding"
Given Korea's high external dependence, most domestic listed companies have a strong "cyclical" nature, being heavily influenced by economic and industry cycles in semiconductors, defense, robotics, and secondary batteries. A significant share of KOSDAQ stocks are also vendor companies to large corporations such as Samsung Electronics or SK hynix.
The problem is that when certain industries slump during multi-year downturns, related small and midsize firms could be pushed en masse to the "brink of exit." Smaller firms with weaker access to information such as securities house reports are more likely to be excluded from institutional flows, making it hard to rule out the possibility that they will be swept out of the market in droves due to supply-demand imbalances unrelated to fundamentals.
According to the Korea IR Association's Corporate Research Center, KOSDAQ company reports accounted for 23.2% of reports issued by securities firms last year. In particular, reports on small caps with a market cap under 100 billion won were only 1.6%. In a market where "crowding trades" have intensified, sidelined corporations could be pushed out of the market in succession.
This raises the question of whether it is appropriate to apply market cap and "penny stock" price thresholds uniformly to all corporations without considering market characteristics and industry cycles.
A KOSDAQ-listed company official said, "Although our share price hovered around 1,000 won, sectors with favorable conditions this year, such as semiconductors, will comfortably clear the (delisting market cap) threshold, but if the cycle turns down, the same company could face delisting risk."
◇ Heavier burdens on corporations to "boost share prices"… need for investor protections
With the number of corporations subject to delisting now expected to more than triple from the earlier estimate of 50, the possibility of a short-term market shock is also being raised. According to simulations by the Korea Exchange (KRX), if the reform plan is applied, between at least 100 and as many as about 220 KOSDAQ companies could face the risk of exit this year.
The more delistings surge, the more unavoidable "hot potato" trading during liquidation sessions and the evaporation of individual investors' assets become.
A capital market expert said, "I agree with the broad direction of cleaning up insolvent companies, but if the speed and scope expand, the damage to individual investors could grow at the same time," adding, "Investor protection measures should proceed alongside exit policies."
The burden is also significant on the corporate side. Lee Chung-heon, head of the independent research firm Value Finder, said, "Small and midsize firms that fall under (the delisting criteria) face heavier burdens because, even in a difficult economy, they must make artificial efforts such as active IR or share price management to meet the market cap thresholds that rise every half-year."