recently, the KOSDAQ market reached a historic milestone, surpassing KRW 500 trillion in market capitalization for the first time ever, nearly four years and 10 months after surpassing KRW 400 trillion in January 2021.the increased size of the KOSDAQ market can be interpreted as a positive sign for venture capital funding and expanded opportunities for innovation growth.
chapter 1. lights and shadows of the KOSDAQ 500 trillion era: diagnosing the Background of Quantitative Growth
reaching 500 trillion: A milestone created by policy expectations
the main driver of the surge in KOSDAQ's market capitalizationwas the expectation of strong market revitalization policies from the governmentrather than improving fundamentals within the market.the prospect of revitalization measures to be announced later this year , which will include increased pension fund inflows and tax incentives, significantly improved investor sentiment.
in fact, after the government's revitalization plan became known, there was a clear shift in the existing supply and demand environment, which was centered on retail investors. in anticipation of the policy, institutional and foreign investors became net buyers, driving the index higher, with the average daily trading value of the KOSDAQ market increasing by about 20% after the policy announcement.
however, when analyzing the background to this quantitative growth, the fact that its performance is so dependent on external policy factors highlights the market's structural vulnerabilities. if the government fails to announce strong revitalization measures (e.g., large inflows from pension funds) at the level expected, or if the effectiveness of the policies falls short of market expectations, institutional and foreign funds that have been attracted in the short term are likely to withdraw immediately. This policy dependence poses the risk that the 500 trillion mark will amplify rather than dampen market volatility.
kOSDAQ's dilemma: Is it a growth market or a short-term trading market?
the KOSDAQ market was originally established to help venture and innovative companies grow and raise capital.today, however, KOSDAQ is considered to be far from a stable long-term investment environment. Due to its high stock turnover rate (the degree to which shares are actively traded) and its structural characteristics as a "transaction-oriented" market with a high proportion of short-term trading, institutional and foreign investors are relatively cautious.
compounding the problem is the fact that the KOSDAQ market is viewed as a "transit" market rather than a "growth center. listed companies that have grown beyond a certain size are more inclined to relocate to the KOSPI, where investor confidence is higher and more stable. this is exemplified by the fact that even the largest biotech company by market capitalization is currently planning to relocate to KOSPI. that's why experts say thatrestoring investor confidenceis the most important challenge for KOSPI, as more stability in the market will allow long-term capital to flow in and really support the growth of innovative companies.
chapter 2. what's driving investor confidence: unfair trade and 'zombie companies'
the core cause of declining trust: the structural nature of unfair trade
the most significant cause of eroding trust in the KOSDAQ market is the frequent occurrence of unfair trading. the KOSDAQ market is characterized by a relatively small number of companies, resulting in high stock price volatility and easy intervention by external forces.
one of the most common types of unfairtransactions is fraudulent manipulation through the use of equity-free mergers and acquisitions (M&A). in a zero-capital M&A, an acquirer acquires a company without contributing equity capital by borrowing from financial institutions, issuing convertible bonds, issuing a share capital increase, or mortgaging the target's assets. stock price manipulators realize profits by artificially inflating stock prices, and in doing so, they employ a variety of illegal tactics that undermine market order.
specifically, they may use nominee accounts to conceal zero-capital M&A, fail to disclose that they have pledged the acquired shares as collateral, and falsely label the source of funds as "own funds" in their large shareholding reports.they also manipulate stock prices by omitting collateral terms or early redemption terms that are important for investment judgment in disclosures of overseas bond issues, or by spreading rumors by issuing false press releases about projects that are unlikely to be realized (e.g., LPG projects).
in one such case involve a group of professionals, such as former financial executives or lawyers, or utilize organized and specialized financial techniques, including the mobilization of private equity funds. In particular, the fact that share price manipulators use methods such as "combination splitting" to realize short-term gains while evading the largest shareholder protection and disclosure obligationsdemonstrates that there is a systematic attempt to exploit the weak disclosure and governance of the KOSDAQ market. this is a serious problem that preys on regulatory loopholes and fundamentally undermines the transparency of the market.
policies to clean up zombie companies and tighten listing standards
another factor that undermines investor confidence is the problem of unsustainable companies, or "zombie companies," remaining on the market. in the past, KOSDAQ has been criticized for being aggressive in listing new companies, but inactive in weeding out companies with weakened business foundations.
in response, financial authorities are improving the delisting system to accelerate the restructuring of low-quality listed companies. the Korea Exchange has revised the KOSDAQ listing rules to gradually tighten the criteria for maintaining listing, a necessary measure to enhance market health and protect investors.
roadmap for phased strengthening of KOSDAQ listing maintenance criteria (2026-2029)
category 2025 (Current) 2026 (start of application) 2029 (Final Target) minimum market capitalization (30 days of continuous trading) 4 billion 15 billion 50 billion minimum Annual Revenue 3 billion 3 billion KRW 10 billionsource: financial Services Commission / Korea Exchange announcement
under the new stricter standards, starting in 2026, KOSDAQ-listed companies will be designated as managed stocks if their market capitalization remains below KRW 15 billion for 30 days, and delisting proceedings will be initiated if they fail to meet the additional requirements within 90 days.
however, in response to the authorities' quantitative regulatory tightening, some listed companies have resorted to artificial regulatory avoidance strategies instead of improving their underlying fundamentals. for example, biotech companies that are engaged in drug development have been observed to artificially increase their revenue by entering new businesses or merging and acquiring companies with non-core businesses.attempts to meet the sales threshold (KRW 3 billion per year) by simply selling health functional foods or making non-core mergers without improving the profit structure of the core business will result in long-term damage to corporate value and investor harm. financial authorities should strengthen their scrutiny of such 'regulatory arbitrage' and encourage management based on real sources of revenue.
chapter 3. KOSDAQ's Policies to Improve Transparency and Comparison to Global Standards
domestic policy efforts to improve market transparency
in order to improve the quality of the KOSDAQ market, financial authorities are also promoting policies to increase governance transparency. a typical example is the plan to improve the treasury stock system for listed companies, which will be implemented from December 31, 2024. this is to ensure that the acquisition of treasury shares, which has increased due to the proliferation of corporate valuation programs, is properly utilized for shareholder return purposes.
key reforms include limiting the allocation of new shares to treasury stock in the event of a reverse split and significantly enhancing disclosures in the holding and disposition of treasury stock. these measures are expected to reduce the potential for treasury shares to be used to consolidate control of the owner's family or to undermine shareholder value, and to address regulatory arbitrage to enhance market confidence.
global Benchmarking (I): dynamic Exit System of Nasdaq in the U.S
to explore how to improve KOSDAQ's constitution, we can compare it with the NASDAQ, a global innovative market. nASDAQ's most distinctive feature is its dynamic ecosystemof easy entry and strict exit.
nasdaq maintains an aggressive metabolism that brings nearly 200 technology companies to market each year, while simultaneously removing twice as many - more than 400 - from the market. this relentless process of market competition and exits weeds out the bad apples and paves the way for the growth of global blue-chip companies like Nvidia, Apple, and Google. if the KOSDAQ market is to remain an innovation market that supports the growth of startups, it is important to adopt Nasdaq's "easy exit principle," which allows the market to bear the cost of failure and consistently weeds out the best companies.
global Benchmarking (II): the Quality Control League of the Tokyo Stock Exchange
another benchmark, the Tokyo Stock Exchange in Japan, operates a multi-level league system for quality control of its market. japan has three leagues: Prime (first league) for large companies with global recognition, Standard (second league) for mid-sized companies for the Japanese domestic market, and Growth (third league) for technology growth companies.
japan regularly evaluates listed companies to ensure they meet the requirements to remain listed, with a demotionsystemfor those that do not meet the requirements and a promotion system for those that do. this league system has the effect of clearly segregating investors based on the maturity and quality of companies, and provides a continuous qualitative upward incentive for all listed companies. such a model could provide an alternative to the "pre-KOSDAQ listing" problem that is endemic to the KOSDAQ market. instead of moving to KOSPI once a company reaches a certain trajectory, a pathway could be created for companies to move to a higher league within KOSPI (e.g., a prime-like league), which would prevent the market from leaking quality companies and encourage qualitative growth.
chapter 4: Conclusion: Strategic Recommendations for Sustainable Growth on KOSDAQ
the KOSDAQ's market capitalization of KRW 500 trillion is a positive sign of the venture ecosystem's growth. However, for this quantitative achievement to be sustainable,the qualitative infrastructureof the market's transparency and soundness must be solidly built.the following strategic recommendations are necessary for the KOSDAQ market to continue to serve as an innovation engine for the Korean economy.
first,the establishment of a swift and strict unfair trade penalty systemis urgently needed. investigations and penalties for fraudulent unfair transactions, including zero-capital M&A, should be strengthened, and economic sanctions, including fines, should be applied more strongly to insider crimes such as using non-public information.as unfair trade is the most fundamental cancerous factor that undermines market confidence, it is essential to strengthen the proactive surveillance capabilities of financial authorities, not just reactive punishment.
second, weneed to anchor restructuring based on competition and efficiency. tighter listing criteria (market capitalization, revenue) must be monitored to ensure that they do not become an artificial means of regulatory arbitrage. like Nasdaq, distressed companies need to be quickly cleared from the market so that resources can be focused on blue-chip companies, thereby increasing the metabolic rate of the market.
third, we need to foster a long-term investment environment byadvancing corporate governance. We need to continue to promote shareholder-friendly policies such as improved treasury stock systemsand other shareholder-friendly policies should continue to be promoted to encourage listed companies to increase shareholder returns and transparentize their corporate governance. This will be a key foundation for building an environment where not only individual investors, but also stability-conscious institutional and foreign investors can participate in the KOSDAQ market for the long term with confidence.