Stock Delisting, From the Removal of Penny Stocks to Stricter Market Capitalization Standards: A Major Change in the Delisting System

Behind this policy change lie the structural problems of the KOSDAQ market.

Over the past 20 years, 1,353 companies were listed on the KOSDAQ market, but only 415 companies were removed.

As this so-called "high birth, low death" (dasan sosa) structure took hold, it has consistently been pointed out that financially troubled companies remain in the market for long periods.

In fact, during this period, the market capitalization of the KOSDAQ market increased 8.6 times, yet the index rose only 1.6 times.

According to an analysis by the Korea Capital Market Institute, it has also been suggested that, had financially troubled companies with low interest coverage ratios been excluded from the index, the KOSDAQ index would have risen an additional 37%.

Going forward, there is a high likelihood that the market will be reorganized into a structure in which companies lacking competitiveness are removed from the market quickly, and innovative companies can grow more easily.

Stock delisting means that shares listed on an exchange lose their listing eligibility and are no longer traded on the securities market.

Companies listed on the KOSPI or KOSDAQ markets must maintain certain financial requirements and management transparency standards.

However, if a company fails to meet these requirements or if a serious legal or financial problem arises, the exchange may review its listing eligibility and ultimately decide on delisting.

In most cases, however, delisting does not occur immediately; rather, the company goes through a process of designation as an issue under administration → the grant of an improvement period → a review of listing eligibility.

During this period, a company may maintain its listing if it normalizes its management, but it may ultimately be removed from the market if no improvement is made.

The most significant change is moving forward the timing of the increase in the market capitalization standard.

The market capitalization standard for delisting in the KOSDAQ market will be raised more quickly than under the previous plan.

• January 2026: KRW 4 billion → KRW 15 billion
• July 2026: KRW 20 billion
• January 2027: KRW 30 billion

In addition, the system is being strengthened so that if a company fails to meet the market capitalization standard for 45 consecutive trading days out of the 90 trading days following its designation as an issue under administration, immediate delisting becomes possible.

In other words, the method of temporarily driving up the share price to avoid delisting is expected to become effectively difficult.

One of the most notable changes in this reform is the introduction of a delisting system for penny stocks.

Stocks priced below KRW 1,000 have low trading volume and high price volatility, which makes them easy targets for share-price manipulators.

In fact, at some companies, there have been cases in which individual investors suffered losses through false disclosures or rumors of mergers and acquisitions.

Accordingly, the following standards are newly introduced.

• A share price below KRW 1,000 persisting for 30 trading days → designation as an issue under administration
• Thereafter, failure to maintain a price of KRW 1,000 or more for 45 consecutive trading days within 90 trading days → delisting

This measure is a system intended to clear out companies that have been left in a low-priced state for a long period.

The standard for complete capital erosion is also being strengthened.

Complete capital erosion refers to a state in which a company's capital has been entirely depleted due to accumulated losses, leaving its total equity at zero or below.

Put simply, it is a situation in which the company has more liabilities than assets, making normal management effectively difficult.

Previously, only complete capital erosion as of the end of the fiscal year was a delisting requirement, but going forward, complete capital erosion on a semiannual basis will also be included as a subject of review.

However, capital erosion on a semiannual basis does not lead to immediate delisting; rather, it is decided after a substantive review.

Regulation of corporate disclosure violations is also being strengthened.

Until now, a company became subject to delisting review when it accumulated 15 penalty points for disclosure violations, but going forward, it will become subject to review upon accumulating only 10 points.

In addition, an intentional and serious disclosure violation may lead to a delisting review even if it occurs only once.

This is a measure intended to enhance the reliability of corporate information disclosure.

The delisting system also undergoes significant changes to the procedure itself.

Currently, in the substantive review process for delisting, a company may be granted an improvement period of up to one year and six months. Going forward, however, this period will be shortened to a maximum of one year.

Specifically, it will operate as follows.

• First review: up to one year
• Second review: up to six months

In other words, the purpose is to reduce situations in which a company with problems remains in the market for a long period and draws out time.

To enhance the effectiveness of the delisting system, the Korea Exchange has also decided to operate a "Delisting Intensive Management Team".

The intensive management team will operate from February 2026 to June 2027 and will consist of a total of four teams comprising 20 members.

This organization will be responsible for intensively managing delisting reviews and swiftly carrying out the procedures for removing financially troubled companies.

This can be viewed as a mechanism intended to put the reform of the delisting system into rapid operation in the actual market.

Delisting is a significant matter that can directly affect a company's credibility, ability to raise funds, and management stability.

In particular, in a situation where the delisting requirements are being tightened and the review procedure is being shortened, it is important for a company to systematically prepare a response strategy from the early stage.

Daeryun Law Firm LLP provides comprehensive legal advisory, ranging from diagnosing delisting risks to establishing strategies for responding to the exchange, drawing on its experience in delisting reviews and corporate governance matters.

• Reviewing whether delisting requirements have arisen and strategies for responding to the substantive review of listing eligibility
• Establishing improvement plans following designation as an issue under administration and reviewing materials to be submitted to the exchange
• Responding to legal disputes related to grounds for delisting, such as disclosure violations and embezzlement or breach of trust
• Advising on listing-maintenance strategies, including corporate restructuring, governance improvement, and the establishment of internal control systems

Through this, we support companies in overcoming the crisis of delisting and pursuing the normalization of their management.

In particular, because whether a company is delisted is a matter determined comprehensively, taking into account not only financial factors but also legal risks and corporate governance issues, it is important to prepare a response strategy through attorney review from the early stage.

If you need assistance with a related matter, you are welcome to make a 🔗legal consultation reservation with a corporate attorney.