[Practical Finance] 'K-OTC' Sees 2100% Growth in Average Daily Trading Volume Five Years After Launch

K-OTC Market Expanded from About 200 Million to 4.48 Billion KRW at Launch
5 of Top 10 Trading Value Companies Are Pharmaceutical and Bio Firms

[Asia Economy Reporter Minji Lee] The Korea Over-the-Counter Market (K-OTC) has established itself as a key platform in the over-the-counter market just over five years since its launch.

According to the Korea Financial Investment Association on the 17th, the average daily trading value over the past month was 4.48 billion KRW, with a total trading value of 89.6 billion KRW. Compared to the market's opening in August 2014, when the average daily trading value was 295.97 million KRW and the total trading value was 5.91955 billion KRW, this represents growth of 2100% and 1418%, respectively.

In December last year, the daily trading value reached a record high of 23.6 billion KRW. At that time, the average daily trading value was 7.437 billion KRW, and the total trading value was 148.74016 billion KRW.

The explosive increase in trading value was driven by mixed expectations and disappointments regarding the Phase 3 clinical trial results of 'Opiranserin,' a non-narcotic analgesic developed by the pharmaceutical company Vibozone. Ahead of the clinical trial results, daily trading value surged to 23.5 billion KRW, and after the announcement of the trial failure, selling pressure increased, leading to the highest daily trading value of 23.6 billion KRW since the market's inception on December 27.

The number of companies traded has also increased noticeably. While 104 companies were traded at the market's launch, currently 134 companies are listed on the market. Last year, a total of 16 companies (1 registered company and 15 designated companies) newly entered the market, and 3 companies moved to other stock exchanges.

However, the total market capitalization has significantly decreased compared to the market's opening. This is because large companies such as Samsung SDS, Mirae Asset Life Insurance, and Jeju Air have moved to the KOSPI market. Last year, companies like Zinus (991 billion KRW), Webcash (171.1 billion KRW), and PPI (71.7 billion KRW) transferred to formal stock markets, contributing to the decline in K-OTC market capitalization. As of last month, the total market capitalization was 13.5825 trillion KRW, down 56% from the 30.0917 trillion KRW at the market's inception.

Regarding the rapid growth in trading volume, a Financial Investment Association official explained, "The surge in K-OTC trading volume last year was due to tax benefits such as capital gains tax exemption for small shareholders and reduced securities transaction tax, as well as increased investor interest in unlisted companies like Vibozone."

For unlisted small and medium-sized enterprises (SMEs), a 10% tax is imposed on capital gains, while other companies are taxed at 20%. However, all capital gains taxes are exempted on K-OTC. As a result, as of the end of last year, SME and venture company stocks, excluding large affiliates and financial companies, accounted for 80.9% of total trading value with 801.6 billion KRW traded. Mid-sized companies traded 138.7 billion KRW (14%). Since the second half of last year, the securities transaction tax has been reduced by 0.05 percentage points to 0.25%, easing the tax burden compared to before.

Last year, the overlap of clinical news from pharmaceutical and bio companies like Vibozone and listing transfer issues led to a notable influx of investors seeking to secure unlisted bio stocks before their listing. Among the top 10 traded stocks by value at the end of last year, five companies?Vibozone, Mediforum, YD Life Sciences, Aribio, and Samsung Medison?were pharmaceutical and bio-related firms. Bio companies accounted for 76% of the total K-OTC trading value.

The Financial Investment Association plans to actively promote the revitalization of K-OTC this year. It will propose regulatory improvements to the government, including aligning the securities transaction tax rates between the unlisted stock platform KONEX market and K-OTC.

Lee Hwan-tae, head of K-OTC at the Financial Investment Association, said, "Since Vibozone last year, K-OTC's recognition has increased significantly, so we expect more companies to enter than in previous years. We will strive to create a safe trading environment for many unlisted companies to participate."