[Edaily Marketin JI YEONG-EUI Reporter] Incidents where investors rely on public disclosures only to have companies later go back on their word are recurring with particular frequency in the KOSDAQ market. For example, after a company announces a supply contract or a funding plan—causing its stock price to move—the contract is canceled or the plan is withdrawn; meanwhile, information that investors need to know in a timely manner—such as lawsuits or changes in the largest shareholder—is disclosed belatedly.

The KOSDAQ, home to many growth companies, sees stock prices fluctuate significantly based on a single disclosure. While trust in disclosures is crucial in this market, instances where disclosures that raised expectations are later reversed and negative news is released late are more common than on the KOSPI. Some point out that the reason KOSDAQ—which launched as the “Korean Nasdaq”—has been stuck around the starting line for nearly 30 years ultimately stems from a lack of investor protection and market trust. Market experts note that punitive sanctions for violations are necessary to resolve the issue of disclosure violations, which has become a chronic problem in the KOSDAQ market.

Reversing Disclosures and Repeated Violations… “Distrust” Mounting on KOSDAQ

According to the Korea Exchange on the 30th, the number of companies designated for inadequate disclosure over the past year, through June 29, reached 129. By market, the KOSDAQ market had the highest number at 78, followed by the KOSPI market with 43, and KONEX with 8. KOSDAQ accounted for 60.5% of the total designations, significantly surpassing the KOSPI’s 33.3% and KONEX’s 6.2%. There were repeated instances where information that could influence investment decisions—such as the filing of lawsuits, changes in major shareholders, debt guarantees, increases in short-term borrowings, and amendments to supply contracts—was not communicated to the market in a timely manner, or where existing disclosures were withdrawn or altered.

This concentration on KOSDAQ is also evident in medium- to long-term statistics. According to an analysis by the Korea Capital Market Institute titled “Status and Implications of Designations of Companies with Inadequate Disclosure Among Domestic Listed Companies” (by Senior Researcher Hong Ji-yeon), approximately 70% of the designations of companies with inadequate disclosure over the past three years were concentrated among KOSDAQ-listed firms.

Non-compliant disclosure is categorized into three types: failure to disclose within the prescribed deadline, retraction or cancellation of previously disclosed information, and significant changes to the key terms of existing disclosures. In particular, retraction of disclosures is identified as a chronic problem in the KOSDAQ market.

While the fact that there are more KOSDAQ-listed companies than those on the KOSPI market is one reason for the high number of non-compliant disclosures, the root of the problem lies in the types of non-compliant disclosures. The Korea Capital Market Institute analyzed thatwhile failure to disclose due to delays is the primary reason for designation on the KOSPI market, a higher proportion ofKOSDAQ-listed companies are subject to designationdue to retraction of disclosures —specifically, the withdrawal or modification of management-related decisions .

Since KOSDAQ has a high proportion of small, medium, and growth-oriented companies, there are frequent stock price-sensitive disclosures regarding supply contracts, investment attraction, capital increases, convertible bond issuances, and the launch of new businesses. The problem is that there are repeated instances where such disclosures raise investor expectations, only to be overturned later due to contract terminations, withdrawal of funding, or business delays. Since revisions to disclosures directly impact already-formed investment expectations and investment decisions, they are more likely to undermine market confidence than simple delays in disclosure.

The KOSDAQ market is also home to a concentration of companies with high cumulative penalty points due to repeated reversals and delayed disclosures. Looking at the penalty points imposed on companies designated for non-compliant disclosures over the past year, 14 out of 17 companies with 10 or more penalty points were KOSDAQ-listed firms, accounting for 82.4% of the total. DAWONSYS Co., LTD recorded 23 points, InkredibleBuzz 18 points, and BUCKET STUDIO Co.,Ltd. 16 points; companies such as Eutilex Co., Ltd., KS Industry, Samyung ENC Co., Ltd., and KOREA CABLE T.V CHUNG-BUK SYSTEM CO.,LTD. were also included in the group of companies with high penalty point totals of 10 or more. The concentration of companies with repeated violations and high penalty point totals on the KOSDAQ market is clearly evident.

Violating Rules Again Despite Penalties… Expert: “Repeated Violations Occur Because Penalties Are Too Lenient”

According to existing sanctions regulations in effect through the end of June this year, companies listed on the KOSPI market are designated as “monitored stocks” if their cumulative penalty points reach 15 or more within the past year; subsequently, depending on whether additional penalty points are incurred or if there are serious or intentional disclosure violations, they may be subject to a substantive review of their listing eligibility. On the KOSDAQ market, if a company’s cumulative penalty points—including those in question—reach 15 or more within the past year, it immediately qualifies for a substantive review of its listing eligibility.

However, starting July 1 of this year, the criteria for delisting reviews due to disclosure violations will be further tightened. The threshold for cumulative disclosure penalty points over the past year will be lowered from 15 to 10, and even a single instance of a serious or intentional disclosure violation will trigger a substantive delisting review. This measure increases the likelihood of market expulsion for companies that repeatedly violate disclosure regulations.

However, even if the threshold for delisting review is lowered, its effectiveness is limited. This is because designation as a candidate for a substantive delisting review is merely the first step in evaluating whether to delist a company; it does not immediately mean removal from the market. While a deterrent effect on companies with repeated violations can be expected, there will inevitably be a significant time lag between the designation and actual delisting or improvements in internal controls, given the process of filing appeals, deliberation, and the granting of a grace period for corrective action.

There are also loopholes that remain if minor disclosure violations occur repeatedly. If the cumulative penalty points over the past year fall below the threshold, a company can avoid being designated for substantive review; furthermore, even in cases where intentional misconduct is suspected, it is difficult to classify the violation as serious or intentional unless the company’s point of awareness, internal decision-making process, and intent to conceal are sufficiently verified. This is why critics point out that strengthening the criteria alone is insufficient to filter out all instances of repeated failures in disclosure management.

The case of the KOSDAQ-listed company SEOJIN SYSTEM CO., LTD ( SEOJIN SYSTEM CO., LTD(178320) ) also illustrates the limitations of regulatory lag. SEOJIN SYSTEM CO., LTD was previously designated as a company with inadequate disclosure practices after receiving 6 penalty points in 2024 for retracting a disclosure and 5 penalty points on June 12 of last year for a delayed disclosure regarding the signing of a stock pledge agreement involving a change in the largest shareholder. Recently, controversy arose over the company’s failure to disclose management risks—including a tax risk of around 100 billion won at its subsidiary Seojin Vietnam and a travel ban imposed on its CEO. Following the Financial Supervisory Service’s verification of the facts, details regarding the imposition of value-added tax and late payment penalties were reflected in the revised first-quarter report on the 25th of this month.

However, since the corrected disclosure was made only a few days after the expiration of the previous penalty period, even if this incident is deemed a disclosure violation, it is unlikely to be combined with the company’s past history of inadequate disclosures. This is why critics point out that, despite stricter standards, if the timing of determining disclosure violations and imposing sanctions does not align, blind spots may remain that prevent the timely detection of recurring failures in disclosure management.

There are also concerns that the severity of the penalties is too lenient to sufficiently deter economic incentives for disclosure violations. Once stock prices have already fluctuated due to a disclosure violation, it is difficult to reverse the damage to investors; from the company’s perspective, there is a risk that it may judge the benefits gained from retracting or delaying disclosures to be greater than the fines imposed.

It is generally assessed that financial penalties are relatively low—typically amounting to only tens of millions of won—compared to the actual impact on the market and investors, resulting in limited deterrent effect. Looking at the companies that received the highest fines in the first half of this year, Kib plug energy(015590)was fined 70 million won for delaying the disclosure of a lawsuit over a management control dispute; Pintel Co., Ltd.(291810)was fined 64 million won for canceling a share transfer agreement related to a change in the largest shareholder and withdrawing a rights offering and the issuance of convertible bonds; and Samyung ENC Co., Ltd.(065570)was fined only 50 million won for withdrawing an application to commence rehabilitation proceedings and canceling a conditional investment agreement related to an M&A.

Capital market experts view inadequate disclosures as acts that deceive investors and undermine market confidence, and they point out that the severity of post-incident penalties must be significantly increased. They explain that since it is difficult to detect all disclosure violations in advance, sanctions are inevitably imposed after the fact; consequently, post-incident sanctions must be stringent to effectively deter repeated violations.

Professor Bin Ki-beom of the Department of Economics at Myongji University pointed out, “The reason KOSDAQ still cannot shake off the perception that it is a ‘minor league’ or ‘second-tier’ market is because incidents such as stock price manipulation, false disclosures, breach of trust and embezzlement, and delistings have been recurring.” He added, “Because penalties are lenient, companies that have violated regulations do so again, and similar violations continue to recur.”

He continued, “Rather than creating more preemptive regulations, it is important to hold companies strictly accountable after violations occur,” emphasizing, “Not only must fines be significantly increased, but criminal penalties must also be substantially strengthened. As long as the perception persists that companies can simply pay a fine and move on even after violating disclosure regulations, the market will not change.”

When the KOSPI Hits 9,000... The KOSDAQ, Stuck at the ‘Starting Line’ for 30 Years

The issue of disclosure reliability on the KOSDAQ is one aspect that explains the market’s long-term slump. Although the KOSDAQ was launched as the “Korean version of the NASDAQ,” it has been criticized for failing to live up to its reputation as a growth market for nearly 30 years. The KOSDAQ index started with a base value of 100 when it was launched in 1996, but in 2004, the base value was adjusted to 1,000 by multiplying the existing index by 10. While the market appears to be fluctuating around the 1,000 mark on the surface, taking the base adjustment into account, it has essentially remained stuck near its starting point since its inception.

An expert in the investment banking industry pointed out, “The KOSDAQ’s slump cannot be explained solely by disclosure issues. It involves a complex interplay of various factors, including supply and demand for growth stocks, the interest rate environment, industry cycles, and the relocation of blue-chip companies to other exchanges.” He added, “However, the pattern of positive news being released first while negative information is disclosed late is particularly prevalent on the KOSDAQ, making it difficult for investors to fully trust companies’ growth plans.”

He further noted, “Unless repeated instances of inadequate disclosure are strictly addressed, the KOSDAQ will remain undervalued amid a climate of distrust, where investors feel they are not protected.”