Financial authorities' efforts to strengthen delisting regulations to swiftly remove failing companies from the stock market have faced a setback just three months after implementation. The Korea Exchange has decided to suspend the follow-up delisting procedures for companies that do not meet market capitalization requirements. This initiative, aimed at boosting market confidence, has instead introduced new uncertainties for businesses and investors. This situation highlights the importance of not only how strictly delisting criteria are established but also how reasonably and consistently they are applied.
The need to strengthen delisting criteria is undeniable. In the domestic stock market, companies with poor performance and deteriorating financial structures have long been criticized for maintaining their listing status. While these companies remain in the market, investor losses accumulate, and the credibility of the capital market declines. The financial authorities' push for the swift removal of failing companies is intended to address these issues.
However, strict delisting criteria do not necessarily guarantee the accurate identification of failing companies. The recent controversy surrounding the market capitalization standard exemplifies this. On October 2, the Seoul Southern District Court granted a provisional injunction against the delisting decisions for Juyun Tech and KM Pharmaceutical. The court raised concerns not about the legitimacy of the market capitalization standard itself but about the timing of its application, recovery requirements, and procedural rights.
Particularly noteworthy is the '45 trading days in a row' recovery requirement. Under the strengthened regulations, companies designated as management items due to insufficient market capitalization must meet the standard market capitalization for 45 consecutive trading days within 90 trading days. This is a significant increase from the previous requirement of 10 consecutive trading days and a cumulative 30 trading days.
One market participant pointed out that this regulation is excessively rigid. For instance, a company that meets the market capitalization standard for 44 consecutive trading days could fall short on the 45th day and then meet the standard again for another 44 days, only to fall below the threshold again on the last day of the 90-day period. This means that despite meeting the standard for 88 out of 90 trading days, the company could still face delisting due to failing to meet the 45-day consecutive requirement. Thus, just two days of stock performance could determine a company's fate.
Of course, there are reasons for establishing such regulations. They aim to prevent companies from artificially inflating their stock prices to avoid delisting. However, it is worth questioning whether these measures adequately reflect a company's potential for recovery. While market capitalization is a crucial metric for assessing a company's value, it is also influenced by overall market volatility and supply-demand dynamics. There is a possibility that stock prices may temporarily decline regardless of a company's financial structure or operational status.
This situation is particularly regrettable because the burden ultimately falls on investors. The exchange announced that it would maintain the designation of management items while suspending follow-up delisting procedures in accordance with the court's decision. However, for companies that have already been delisted and had their trading suspended, the trading halt will remain in effect. This means that the circumstances can vary among companies subject to the same market capitalization criteria depending on the timing of procedural progress.
Delisting is not merely about removing a failing company from the market; it directly impacts the property rights of investors holding that company's stock. While allowing failing companies to linger too long can increase investor losses, a lack of predictability in the delisting process can also harm investors. If the system is designed to protect investors, it must minimize uncertainty during its implementation.
Delisting is a policy that is easy to evaluate based on numerical outcomes. It is evident how many companies have been delisted and how quickly the market has been cleared. However, an increase in the number of delisted companies does not necessarily indicate a healthier market. The key is to ensure that companies that should be delisted are removed while preventing viable companies from being pushed out due to flawed criteria.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.