36 Kospi and Kosdaq firms receive new warnings as authorities spur market cleanup Korea Exchange office building in Yeouido, western Seoul (Korea Exchange) South Korea has put 36 listed companies on notice under tougher rules designed to accelerate the removal of penny stocks and financially weak firms.The Korea Exchange designated the stocks as administrative issues Wednesday after their share prices or market capitalizations fell below minimum listing requirements. Nine trade on the Kospi and 27 on the Kosdaq.Of the total, 30 were newly designated, while six companies already under administrative issue status received additional grounds for possible delisting.The action follows reforms announced by the Financial Services Commission and the KRX in February to speed up the exit of distressed and marginal companies.Under rules introduced last month, a stock is designated an administrative issue if it trades below 1,000 won ($0.71) for 30 consecutive trading days. The same applies when a company’s market capitalization remains below 30 billion won on the Kospi or 20 billion won on the Kosdaq for the same period.The company enters delisting proceedings if its stock fails to stay above the applicable threshold for at least 45 consecutive trading days during a 90-day recovery period.The market capitalization requirements will rise next year to 50 billion won for the Kospi and 30 billion won for the Kosdaq.Companies affected include Kosdaq-listed CMG Pharma, LabGenomics and JMI, as well as Kospi-listed Daeyoung Packaging.Financial authorities and the exchange argue that faster delistings will help remove chronically weak companies from a market where exits have failed to keep pace with new listings. Over the past 20 years, 1,353 companies have joined the Kosdaq, while only 415 have been delisted.Removing marginal companies could also significantly improve the junior market’s earnings and valuation indicators.Kosdaq-listed companies generated a combined operating profit of 14.1 trillion won last year, according to NH Investment & Securities. Excluding marginal companies, the figure would have reached 18.8 trillion won.The Kosdaq’s price-to-earnings ratio would have fallen to 31.3 from 112.6, the brokerage estimated.“As tougher delisting rules accelerate the exit of insolvent companies, Kosdaq earnings should improve and its elevated valuation should come down,” said Lee Sang-jun, a researcher at NH Investment & Securities. “The index should be able to reclaim the 1,000-point level.”The regulatory push comes as the Kosdaq stages a sharp recovery. The index has climbed more than 18 percent this month after weakening from May, making it the best-performing major global stock index.It has gained 33 percent since July 30, nearly twice the Kospi’s 17.62 percent advance over the same period. The rally triggered buy-side sidecars — temporary curbs on program trading — four times, on July 31 and Aug. 3, 4 and 10.The government is also preparing a tiered system that could divide Kosdaq companies into segments such as Premium and Standard. Details could be announced as early as September or October, with implementation targeted for the first half of next year.Critics warn that the stricter standards could place additional strain on smaller companies, particularly as investor demand remains concentrated in semiconductor stocks.“For small and medium-sized enterprises struggling with market volatility, authorities need to distinguish between fundamentally weak companies and those facing temporary difficulties,” said Kim Ki-mun, chairman of the Korea Federation of SMEs.Companies at risk have begun taking defensive measures. Fifteen of those designated as administrative issues are preparing shareholder meetings to approve share consolidations or capital reductions intended to lift their stock prices above 1,000 won.JMI, for example, said Thursday that it would conduct a five-for-one share consolidation, raising the par value of each share from 1,000 won to 5,000 won. Some companies have also sought court injunctions to challenge their designation.“It is reasonable for companies to take self-rescue measures to avoid delisting, but they should not focus on preserving their listings at the expense of improving their underlying competitiveness,” said Eom Su-jin, a researcher at Hanwha Investment & Securities.