The Korea Exchange (KRX) mistakenly lifted the designation of SCM Lifescience as an issue under administrative watch and reversed the move a day later. During the process, the stock price swung sharply, causing investor losses.
An administrative watch designation is applied by the Korea Exchange (KRX) to warn of investment risk when a listed company's financial structure or management has serious problems or is deemed unlikely to meet listing maintenance criteria. Conversely, lifting the designation is interpreted to mean the seriousness of the listed company's financial structure or management has been resolved and the company has returned to a "normal issue." Such designations and removals inevitably have a major impact on the stock's price.
But the exchange misread the criteria and lifted the designation, then redesignated the stock a day later, sharply eroding investor trust in the exchange.
The Korea Exchange (KRX) said in materials distributed late on the 17th, "The KOSDAQ market division, after reviewing the audit report submitted by SCM Lifescience on the 16th, mistakenly determined that the requirements to lift the administrative watch designation had been met and proceeded to lift the designation," adding, "However, during verification the next day, on the 17th, we identified an error in the lifting action, and because investor losses could occur, we redesignated the stock as under administrative watch during trading (2:28 p.m.)."
SCM Lifescience was designated under administrative watch in Mar. last year. That was because the audit report submitted at the time confirmed two consecutive years of losses from continuing operations before income taxes. The company also recorded such a loss last year.
Under exchange rules, the designation can be lifted only if there is a profit from continuing operations before income taxes.
However, an exchange official mistakenly concluded that the reason for designation had been resolved after seeing that the loss before income taxes plunged from 13 billion won in the previous fiscal year to 400 million won last year and that net income swung to a profit.
After lifting SCM Lifescience's administrative watch designation on the 16th, the KOSDAQ market division disclosed that the company's board category had reverted to the mid-sized company board. Due to the erroneous judgment, the designation was lifted for an issue that did not meet the requirements.
The exchange then immediately redesignated SCM Lifescience under administrative watch. Being redesignated in just one day caused investor confusion.
The bigger problem was that the stock price surged right after the exchange lifted the designation. The share price, which had hovered around 850 won through the 16th, opened above 1,000 won on the 17th and jumped to the daily price limit early in the session. When the exchange redesignated the stock under administrative watch, the price quickly turned lower.
As the stock whipsawed, trading volume exploded to more than 100 times the usual level. Investors lodged strong complaints. Online, some argued, "Investigate investors who bought shares at high prices due to the exchange's mistake, and compensate for any losses."
The exchange said, "We will conduct an internal audit to identify institutional problems and supplement the disclosure system using artificial intelligence (AI) technology," adding, "If necessary, we plan to take measures such as holding those involved to account." It added that it would make every effort to ensure stable market actions to prevent similar incidents.