KOSDAQ-listed company Koiz was confirmed for delisting earlier this month due to a market capitalization below 20 billion won. After undergoing special trading for seven trading days from September 3 to 11, it was ultimately delisted on September 14. Special trading provides shareholders with a final opportunity to recover their investments before delisting, typically resulting in a sharp decline in stock prices. Koiz's stock fell approximately 35% on the first day of special trading and continued to decline for four consecutive days. However, on September 9, Koiz's stock price unexpectedly surged by 140%, despite no apparent positive news. The reason for this sudden spike remains unclear, as the stock closed at 135 won on the final day of special trading on September 11.
The government has accelerated the process of removing underperforming companies from the market, leading to a rise in delistings in the second half of the year. As a result, special trading, which serves as the last trading opportunity for companies facing delisting, is becoming more frequent. Concerns are growing that the phenomenon of stock prices spiking during special trading could exacerbate losses for retail investors. Some stocks have seen increases of nearly 200% in a single day. Analysts suggest that this 'hot potato' scenario arises from major shareholders selling their stakes and exiting, leaving behind a company filled with retail investors, combined with the absence of price limits encouraging speculative buying.
Why Are Stock Prices Rising Despite Confirmed Delisting?
According to the Korea Exchange, among the 30 stocks that underwent special trading after being confirmed for delisting this year (six from KOSPI and 24 from KOSDAQ), 10 stocks (33.3%) exceeded the general market's upper limit of 30% for daily price increases. Special trading refers to a seven-day trading period that provides minority shareholders with a final opportunity to recover liquidity before delisting. Under current regulations, there are no price limits during special trading, allowing for extreme price fluctuations even with minimal trading volume or supply changes.
In particular, Jeil Bio, which underwent special trading in February, experienced an extraordinary situation where its stock price appeared to soar by nearly 30,000% during the period. This was attributed to a 1,500-to-1 stock consolidation (reverse stock split) coinciding with the start of special trading, creating an illusion of a price surge. The number of shares decreased from 29.12 million to 19,419, making it seem as though the stock price had skyrocketed, while the actual price adjusted for the consolidation fell. This misleading signal during the delisting phase confused investors.
Even excluding such illusions, several stocks have genuinely doubled in price during special trading. Stocks like Probe It (177.78%), Koiz (140.00%), and Welbio Tech (114.29%) saw their prices more than double during this period. Other stocks, including Intro Medic (97.67%), RF Semi (75.68%), Bion (68.42%), NPX (48.94%), and Kukbo (37.10%), also exhibited extreme volatility, significantly surpassing the 30% upper limit. As of September 14, KOSDAQ-listed Kodako is also experiencing special trading, with a 10.24% increase during the period.
“Retail Investors' Last Hot Potato”
Stocks that experienced significant price increases during special trading share a common structural characteristic: extremely low ownership by major shareholders or the absence of a controlling shareholder. Instead, retail investors hold a dominant share. According to half-year reports disclosed by underperforming companies before delisting, retail investors account for 98-99% of the total number of shareholders. In many cases, they also hold over 70% of the total shares.
In the case of Koiz, which completed special trading in September, retail investors owned 3,649,175 out of 5,056,999 total shares, representing 72.28%. The number of retail investors reached 9,941, accounting for 99.92% of all shareholders (9,948). Jeil Bio, which experienced the illusion of a price surge, also had 819 out of 827 total shareholders as retail investors (98.92%).
Intro Medic, which saw the highest fluctuation rate of 97.67% during special trading, had 11,579 retail investors, making up 99.94% of all shareholders (11,586). They held 71.87% (30,904,478 shares) of the total shares.
“Measures Needed to Protect Minority Shareholders”
The issue lies in the fact that retail investors bear the brunt of the consequences of this hot potato scenario. Retail investors who fall victim to illusions or speculative buying during special trading find it nearly impossible to recover liquidity or seek compensation after delisting.
Experts warn that the special trading system is straying from its original purpose of providing liquidity and is becoming a short-term speculative market. They emphasize the need for improvements to include information provision for protecting minority shareholders alongside the delisting process.
Seojiyong, a professor at Sangmyung University, stated, “Special trading is essentially the last opportunity to sell after a delisting confirmation, but the absence of price limits during the seven trading days makes it easy for speculative trading to lead to sharp declines. Investors who cannot sell during this period may suffer losses in terms of liquidity and accessibility in an unlisted state, so it is crucial to provide sufficient time for investors to assess the reasons for delisting, financial status, and recovery potential.” He added that it is necessary to establish a framework for compensating minority shareholders in cases of false disclosures, accounting fraud, or embezzlement that lead to delisting.
Kim Dae-jong, a professor at Sejong University, also pointed out the need for investment risk warnings, enhanced market monitoring, and differentiated delisting procedures in response to the irrational overheating of the special trading market. He noted, “The phenomenon of stock prices soaring over 100% or plummeting over 90% during special trading before delisting is more indicative of speculative trading than normal price formation. Since there are no price limits during special trading, even slight changes in supply and demand can lead to extreme price movements.”
He emphasized that retail investors often struggle to accurately assess a company's financial status or value after delisting, which can result in significant losses if they chase after rising prices only to face a subsequent drop. While the need for swift removal of underperforming companies is essential, measures must be put in place to prevent excessive harm to minority shareholders during the delisting process.
* This article has been translated by AI.
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