"More Than Coins? ... Large Sums Flocking to the OTC Market K-OTC"

[Asia Economy Reporter Jang Hyowon] Recently, the regulated over-the-counter market K-OTC has been gaining attention. Not only pre-listed companies but also hidden valuable firms are shining in the K-OTC. As of the 20th, the total market capitalization of the K-OTC market reached 22.1 trillion KRW, a 30% surge from 17 trillion KRW at the end of last year.

With the growing interest of quick-moving investors, the trading volume continues to increase. The average daily trading volume rose from 4.03 billion KRW in 2019 to 5.15 billion KRW last year, and 6 billion KRW this year.

K-OTC is an over-the-counter stock market established by the Korea Financial Investment Association in 2014. It allows convenient trading of unlisted stocks as if they were listed stocks, and since it is managed by the Korea Financial Investment Association rather than private companies, it offers relatively higher stability. Basically, if companies meet criteria that are more relaxed than those of the Korea Exchange’s KOSPI or KOSDAQ listings, they can register and trade on K-OTC.

Currently, there are 140 companies traded, and the number of listed stocks continues to grow. This year alone, 11 companies have newly registered, and it is expected that 20 new stocks will be added by the end of the year.

The unlisted stock market is not only composed of small venture companies. Large corporate affiliates such as POSCO Engineering & Construction, SK Ecoplant, and Netmarble Neo, as well as bio companies like Vivoson, Aribio, and Osang Healthcare, are also traded on K-OTC.

Stocks showing high growth rates have also appeared. Indong Advanced Materials, a secondary battery anode material manufacturer that entered K-OTC in April, surged 400% on its first trading day and recorded returns exceeding 1000% within five trading days. Duol Mulsan, registered on the 13th, also recorded the upper price limit for three consecutive trading days, showing returns in the 1000% range.

Although K-OTC is an over-the-counter market, stocks can be bought and sold in the same way as general listed company trading. Trading is possible through all securities firms’ Home Trading Systems (HTS) and Mobile Trading Systems (MTS). Trading hours are from 9:00 AM to 3:30 PM. The price fluctuation limit is also the same, with an upper and lower limit of 30%.

However, there is no after-hours trading, and the trading method is a negotiated transaction that occurs only when the bid and ask prices match. If the bid and ask prices differ, investors must adjust their quotes to complete the transaction.

Meanwhile, K-OTC also offers tax benefits. The Income Tax Act was revised in 2018 to expand capital gains tax exemption for small shareholders trading in the K-OTC market from venture companies to small and medium-sized enterprises. Additionally, the securities transaction tax rate has been reduced to the current level of 0.23%, the same as KOSDAQ.