[Reporter’s Notebook] Even Sound Companies and Retail Investors Suffer Under the 'Penny Stock/Market-Cap' Axe

The financial authorities’ ambitious initiative, introduced early this year under the banner of improving the health of the stock market, to delist penny stocks and companies that fall below the minimum market-capitalization threshold has been halted by a court’s decision to grant an injunction suspending its effect. The authorities invoked plausible justifications, including eliminating the Korea discount and promoting corporate value enhancement, but the outcome was foreseeable given that they pushed ahead without sufficient public consensus or preparation.

When introducing the policy, the authorities put the example of advanced markets front and center, claiming that “even the U.S. Nasdaq delists stocks if their share price falls below $1.” In reality, however, it was little more than a crude, half-baked imitation. While Nasdaq operates a penny-stock delisting policy, it also provides ample grace periods of up to 360 days and guarantees companies the opportunity to make their case before an independent hearing panel. By contrast, our authorities chose to put companies on the chopping block based on a handful of mechanical figures, stripping them even of basic due-process protections such as the right to appeal or undergo a substantive review.

The court’s decision was foreseeable because the system is structured not to help companies recover, but to “kill them first and ask questions later.” The moment a company is designated as a managed issue for failing to meet the share-price or market-capitalization threshold, the market treats it as effectively condemned to death, triggering severe stigmatization and a flood of sell-offs. In such an environment, it is nearly impossible to escape the harsh requirement of “meeting the threshold for 45 consecutive trading days within a 90-day period.” Even solid companies that have been weighed down by a market downturn or temporary distortions in supply and demand, while quietly remaining profitable in their core businesses and building a track record of strong performance, are losing their standing with external stakeholders and being swept up in the threat of delisting. This is the result of completely disregarding earnings and fundamentals.

The brunt of this policy falls squarely on powerless minority shareholders. The lower a stock’s market capitalization and share price, the more overwhelmingly individual investors outnumber institutional and foreign investors among its shareholders. The authorities invoked “investor protection” as their justification, yet minority shareholders were blindsided as assets they had amassed through years of hard work turned into worthless scraps overnight, without ever properly hearing about the company’s efforts to get back on its feet or its explanation. In trying to punish poorly managed executives, the authorities have instead driven innocent retail investors into a dead end.

The essence of a delisting system should be a careful process of separating viable companies from unviable ones. Rather than cutting off a company’s lifeline based on formal criteria such as its share price and market capitalization, the authorities should shift to substantive reviews by a corporate review committee. Companies that deliver results and demonstrate business value despite difficult circumstances should be given sufficient opportunities to make their case and adequate grace periods so they can survive. We must no longer make the mistake of burning down the house to kill a flea and plowing under healthy crops along with the weeds.

This content was produced with the assistance of AI translation services.