[Exclusive] Ostem Embezzlement and Celltrion Accounting Fraud Fallout?... Introducing KOSDAQ Segments and Indices "Not Easy"

[Asia Economy Reporter Lee Seon-ae] It appears unlikely that the Korea Exchange's 'KOSDAQ Segment' and the separate new 'KOSDAQ Index Development' based on it will be introduced within this year. Although the goal was set for introduction this year, the segment selection (entry) criteria have not yet been established. Following the largest-ever embezzlement case in a listed company involving Osstem Implant and subsequent major adverse events such as allegations of accounting fraud at Celltrion, there seems to be considerable difficulty in establishing the KOSDAQ segment selection criteria.

On the 19th, it was confirmed that the Korea Exchange has not yet prepared even detailed criteria for the 'KOSDAQ Segment' it is promoting.

Last November, the Korea Exchange held a seminar titled 'Seminar for Introducing a New Market Structure for KOSDAQ' and announced the introduction of segments to develop the KOSDAQ market. A segment refers to a partial market that shares the same market brand but has independent entry and exit based on the characteristics of the member companies. The Korea Exchange's goal is to manage high-quality KOSDAQ companies separately through segment introduction to overcome concerns from institutional and foreign investors and to promote market development. By operating an entry and listing management system specialized for large, high-quality innovative companies, the KOSDAQ segment aims to secure differentiation, selecting only a small number of companies, approximately the top 5% of KOSDAQ listings. Additionally, a 'KOSDAQ Index' was planned to be launched for the high-quality companies within the segment. The goal is to establish a fundamental index reflecting market capitalization and various quality indicators, differentiating it from the current 'KOSDAQ150' index, which includes about the top 10% of KOSDAQ companies.

The market had high expectations for the announcement this month, hoping to resolve 'KOSDAQ exclusion,' but all processes remain at an early stage. The KOSDAQ Market Department of the Korea Exchange stated, "We are currently gathering market opinions and working on creating selection criteria, but it is still at a very early stage," adding, "We cannot create segments without detailed system plans, and the criteria have not yet been established." They also conveyed that the decision on index development has not been made. Although a vision was presented for segment introduction and index development based on it, the actual timing of segment introduction is unknown, so the decision on index development has not yet been made.

The KOSDAQ Market Department added, "We will decide whether to develop an index based on the segment introduction after the segment is introduced," and emphasized, "This is unrelated to incidents such as the Osstem Implant embezzlement, and it is still too early to specify the timing of introduction; it is expected to take considerable time."

The market views that the series of major adverse events in the KOSDAQ market since the beginning of the year?including the Osstem Implant embezzlement, Celltrion's accounting fraud allegations, the rejection of MedPacto's clinical plan, and ShinlaGen's delisting?have had some impact.

Currently, the atmosphere in the KOSDAQ market is unsettled due to the largest embezzlement case in the history of listed companies. The Korea Exchange is closely monitoring the situation and is examining the accounting systems of KOSDAQ-listed companies more thoroughly. Ultimately, the accounting system has become a critical criterion that can significantly influence the selection of high-quality companies.

Initially, the Korea Exchange planned to set separate requirements allowing companies with deficits or no operating performance to be included if they have very high growth potential, and also considered allowing inclusion through company applications. In such cases, newly listed companies could apply even at the preliminary listing review stage. The plan also included setting requirements to abolish or relax systems that are unreasonable for high-quality companies to at least the level of KOSPI, and to determine whether to maintain segment status through regular inspections.

The task of establishing segment selection criteria does not seem to be an easy one. A source from the financial investment industry commented, "The key is to set clear criteria," adding, "If the criteria are too high or maintaining status is burdensome, companies will inevitably move to other markets, so an appropriate level must be considered. However, since trust in the overall KOSDAQ market has been lost, the entry criteria cannot simply be set too low."