KRX takes action in Codes situation

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KRX takes action in Codes situation

Korea Exchange, the nation’s stock board operator, said on Tuesday it will suspend trading on stocks that have an insufficient number of tradeable shares.

The measure comes after the stock value of Codes Combine, a small fashion company that has been seeing heavy losses, rose suspiciously last week.

The fashion company has posted operating losses for the past three years and even faced the possibility of being de-listed in recent months. But its share value soared for no apparent reason over the past few days, and the struggling company has suddenly become a major player on the market.

As of Friday, it was the third-largest company on the Kosdaq by market capitalization, behind Celltrion and Kakao.

The operator said it will suspend transactions of stocks that have fewer than 100,000 tradeable shares if prices rise or fall abnormally. Transactions will also be suspended if the ratio of tradeable shares to the total number of shares falls under 2 percent on the Kosdaq or 1 percent on the Kospi.

Once suspended, those stocks will be allowed to resume transactions if the number of tradeable rises to 300,000 or the ratio increases to 5 percent, according to the regulator.

The Korea Exchange will also inform investors considering a certain stock if the stock’s amount of tradeable shares has recently and suddenly shrunk because of reasons like corporate restructuring, including capital reduction.

Only 0.6 percent of Codes Combine’s 37.84 million listed shares are tradeable, the lowest-ever level for a company in the history of the Kosdaq, the regulator said. The remaining shares are being held by the court because of the ongoing restructuring process, which will end in June.

A lack of tradable shares means that supply is falling short of demand. As a result, the price of those shares can surge even though no shares are being traded or the number of transactions is very small.

Trading of the company’s stock was halted due to the restructuring from February 2015 to December.

According to the e-notification system by the Financial Supervisory Service, Codes Combine shed nearly 99.6 percent of its capital on Aug. 13, from around 25.4 billion won to 1.3 billion won, as part of efforts to improve its financial structure. It then raised 11.8 billion won in capital the following day. On Aug. 14, the company again conducted significant capital reductions and increases. Such actions were interpreted as the company’s efforts to prevent itself from being de-listed on the market.

The company’s stock soared in the process of the capital reductions, from 509 won per share in February 2015 to about 100,000 won in late December.

When transactions resumed on Dec. 24, the company’s market capitalization appreciated to 1.51 trillion won. At that time, its share value was around 40,000 won ($34.53), but it had spiked to 150,000 won as of last Tuesday. Codes Combine shares fell to around 76,000 won after the measure was announced.


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