Kosdaq Gets Tough With Listed Firms

As of next week, oversight of companies listed on the Kosdaq market will be as stringent as for those on the Korea Stock Exchange in the wake of an amendment passed by the Financial Supervisory Commission which adds strength to the monitoring of Kosdaq firms.

Like a regulation the main exhange instituted in July, insolvent Kosdaq companies that fail to take specific rescue steps within six months of defaulting will be delisted from the exchange.

Kosdaq companies found to be manipulating their books were previously tagged with "red flags," or initial warnings, and given two-year adjustment periods. But now such companies will be slapped with red flags on the first offense and will be delisted if the deception continues into the next year. Furthermore, if a company receives a qualified report from an auditor it will get the red flag right away, and will be delisted if it fails to rectify the problem by the following year.

Security analysts welcome the stiffer measures, saying that the new rules will deter "window-dressing" and boost investor confidence, leading to long-term market value gains. "Because Kosdaq companies are smaller and can grow fast in short periods, they are more susceptible to book-rigging than companies listed under the Korea Stock Exchange," an analyst at Good Morning Securities said.

The new rule will take effect next Monday, and companies whose fiscal years end in March will be the first to be held to the tougher standards.

by Lee Sang-ryeul