The Korea Exchange has filed an objection after a court blocked its move to delist companies that failed to meet minimum market capitalization requirements. But the objection stands little chance of success because it will be reviewed by the same bench that flagged flaws in the rules, and both the exchange and the targeted companies are likely to take the dispute to a full trial. That raises the prospect that the exchange's plan to lift KOSDAQ valuations by pushing out marginal companies will stall well into next year.
The Korea Exchange submitted an objection on the 15th, contesting a decision by the 51st civil division of the Seoul Southern District Court to grant injunctions suspending the delistings of Jooyontech and Kmpharmaceutical, according to financial investment industry and legal sources on the 18th. The court had found that the exchange revised its market-cap delisting rules and moved up implementation by six months without giving companies even a minimal opportunity to file objections or present their case. The exchange said at the time that it would temporarily suspend follow-up delisting procedures while pursuing an objection.
Timing is the problem. A ruling on the objection will take at least two to three months, meaning a decision is unlikely before the end of this year. If the case moves on to an appeal at the high court, a final ruling in the main suit could take one to two years or longer. As the dispute drags on, questions of fairness are mounting. Eight companies whose delistings were decided before the injunctions were granted — including Jooyontech, Kmpharmaceutical, Sejin TS and Fintel — remain indefinitely suspended from trading, freezing shareholders' money. By contrast, more than 50 companies designated as administrative issues for the same reason, including Monami, Tway Holdings Incorporation and Clean & Science, continue to trade normally because follow-up delisting procedures have been suspended, regardless of whether they failed to meet recovery requirements.
Legal experts see little chance the exchange's objection will succeed. An objection to an injunction is reviewed by the same bench that issued it, and they say it is difficult to overturn a ruling that took issue with the failure to give companies a chance to respond. Market participants expect that if the objection is dismissed, the most likely scenario is that the exchange will again revise its listing rules to grant companies below the market-cap threshold the right to file objections and undergo a qualitative review. That would also force a redesign of follow-up quantitative delisting measures, such as removing stocks trading below 1,000 won. Another option under discussion is a compromise in which the exchange revises the rules preemptively, before the court rules, to open a qualitative review track for the eight companies.
The assessment is that enforcement cannot resume without surgery on the exchange's rules. "Since the court has already pointed to the illegality of the rules, there is little chance an objection will change the outcome," said Lee Kyung-ho, managing attorney at Axia Law Office. "A rule revision guaranteeing the opportunity to present one's case is inevitable, so moving quickly on that revision is the right way for the exchange to limit damage to shareholders of companies whose shares are suspended."