Over 200 stocks face delisting as penny stock crackdown kicks off in July
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More than 200 public companies could face delisting under a new Korea Exchange (KRX) rule targeting penny stocks set to take effect July 1, putting investors and affected firms on edge.
Penny stocks refer to shares trading below 1,000 won ($0.65).
According to KRX data, 219 companies were trading below that threshold as of Friday, accounting for 7.6 percent of all listed firms. The total includes 148 companies listed on the secondary Kosdaq market, 42 on the benchmark KOSPI and 29 on the Korea New Exchange (KONEX), a market for small and medium-sized enterprises and startups.
These companies account for more than 8 trillion won in combined market capitalization, raising concerns that a sizable amount of value could disappear from the market if those firms eventually fail to meet the new requirements.
Given the monitoring and grace periods under the new rules, market observers expect the first companies to become eligible for delisting as early as the fourth quarter of the year.
The move is part of a broader delisting reform package unveiled by the KRX earlier this year to accelerate the removal from the market of underperforming companies that are seen as weighing on the competitiveness of the local stock market.
Authorities said tougher rules on penny stocks were introduced because low-priced stocks are often associated with sharp volatility and speculative trading.
Under the new rules, companies whose shares trade below 1,000 won for 30 consecutive trading sessions will be placed on a watch list. Firms that fail to maintain a share price above the threshold for 45 consecutive trading days during a subsequent 90-day period could face delisting.
Many companies have already begun taking steps to avoid delisting under the new regulations, including reverse stock splits.
A reverse stock split reduces the number of outstanding shares by combining multiple shares into one, which leads to an increase in the price of each share.
According to regulatory filings, 219 companies announced reverse stock splits between February through June 19, compared with just nine during the same period a year earlier.