This Week's Risk Radar: When the Threshold Moves and the Company Doesn't

On August 12, the Korea Exchange designated 36 listed companies as management issues. It was the first cohort to complete the 30-trading-day test under a listing rule that took effect on July 1: a closing price below ₩1,000, or a market capitalisation below ₩20bn on KOSDAQ and ₩30bn on KOSPI. Two more names were added on the 13th, one on the 14th. The running count is 39, and eight more were flagged as designation-risk during the week of August 10–15. Industry estimates reported by Yonhap put the eventual figure near 100 delistings within the year — an estimate, not a count.

The dominant reading is that a long-delayed cleanup has finally begun. It probably has. But there is a second number in the same reporting, and it points somewhere else entirely.

The response, not the rule

Between February 12 — when the Financial Services Commission and the Korea Exchange announced the delisting reform — and August 12, when the first designations landed, 276 reverse stock splits were initiated across both markets: 219 on KOSDAQ, 57 on KOSPI. In the same calendar window, 2024 produced 5 and 2025 produced 12. That is roughly a 23-fold increase, according to Hanwha Investment & Securities data cited by Yonhap.

Here is why that matters more than it sounds. A reverse split raises the price per share. It does not change market capitalisation. Not by rounding, not marginally — by construction, by zero. The revised listing rule contains two independent thresholds, and a merge clears exactly one of them while leaving the other precisely where it was. Three of the 36 designated names — Ontide, Hyungji Global and E8 — breached both criteria simultaneously. For those, the mechanism offers no relief at all.

The follow-through is measurable too. Of 156 merges that completed relisting between February 12 and July 15, 130 — 83.3% — were trading below their relisting-day price as of July 15. Eom Su-jin of Hanwha put it directly: reverse splits pursued after February's reform announcement will struggle to escape the suspicion of regulatory avoidance, whatever other reasons may have existed.

Why this is a measurement problem, not a morality problem

The interesting part is not that companies took the escape route. It is what the escape route does to the observable record.

"Trading below ₩1,000" was a free, public, universally accessible screen. Anyone could run it. A reverse split deletes that signal without altering anything the signal was about. The company's earnings, its cash, its obligations, its ownership structure — unchanged. What changed is that the filter no longer returns it.

So the largest measurable effect of the reform in its first six months was not exit. It was a signal reset at a scale of 276 events. And that reset leaves no trace in the financial statements at all, because share count and par value are the only line items involved.

The US wrote the distinction into the rule

In January 2025, the SEC approved Nasdaq and NYSE amendments that treat the reverse split itself as a fact about the issuer. Under Nasdaq Rule 5810(c)(3)(A)(iv), a company that fails the minimum bid price requirement and has effected a reverse split in the prior one-year period receives no compliance period — the exchange issues a delisting determination instead. Goodwin's summary is explicit that this applies even if the company was in compliance at the time of the earlier split. NYSE Section 802.01C mirrors it and adds a two-year cumulative test at a ratio of 200-to-1 or more. A separate Nasdaq amendment from October 2024 closes the side door: if the corporate action taken to fix the bid price pushes the company below some other listing threshold, no separate compliance period is granted for that new deficiency.

These rules did not appear in a vacuum. Goodwin notes the SEC approvals followed a record 495 reverse splits by listed companies in 2023.

Korea Parallel

The structural point RaymondsIndex is built around applies cleanly here. Zone classification asks whether a company has crossed a line. It cannot, on its own, distinguish between a company that moved and a unit of measurement that was rescaled. That distinction has to be carried separately, because both produce the same screener output and only one of them is information.

The academic frame is not new. Healy and Palepu (2001, Journal of Accounting and Economics) set out the demand for disclosure as arising from information asymmetry between managers and outside investors, and note that regulation shapes which asymmetries get resolved. Brav, Michaely, Roberts and Zarutskie's work on payout and capital-structure signalling makes a related point about corporate actions functioning as signals — and, by extension, about what happens when an action becomes a routine compliance step rather than a costly one.

For individual investors, the practical version is short. When a name leaves a low-price screen, one of two things happened, and the screen will not tell you which. The share count will.

Observations based on publicly disclosed filings and exchange rules. Not investment advice.

#RaymondsRisk #RelationalRisk #CorporateGovernance #ReverseSplits #DelistingRisk #KoreaEquities