Nasdaq 'Dongjeonju' Soars... From 2 to 464 in 2 Years

Mass Entry After Advanced Technology Startup Boom
Failure to Deliver Results
Stock Trading Below $1

On the Nasdaq, the U.S. stock exchange market focused on technology stocks, the number of "penny stocks" trading below $1 has surged. This is analyzed to be due to companies that entered Nasdaq amid a startup boom centered on advanced technology sectors failing to deliver significant results, thus falling into penny stock status.

The Wall Street Journal (WSJ) reported on the 3rd (local time) that among Nasdaq-listed companies, 464 had shares trading below $1 as of the 1st. In July 2021, only two Nasdaq-listed companies had stock prices below $1, but the number has increased exponentially since then.

WSJ analyzed that companies entering Nasdaq years ago amid a startup boom focused on advanced technology sectors became penny stocks after failing to achieve results. In particular, most of these companies were found to have been indirectly listed on Nasdaq through mergers with Special Purpose Acquisition Companies (SPACs).

These companies are at risk of being delisted from Nasdaq. However, since processes such as appeals by the companies take place until the delisting decision is finalized, it is expected that they can continue trading on Nasdaq for at least one year after becoming penny stocks. Nasdaq can cancel the listing and delist companies whose stock price falls below $1. Once the stock price remains below $1 for more than 30 days, the company receives a first warning and is given a 180-day correction period. Even if the issue is not resolved within 180 days, most companies receive an additional 180-day correction period. After that, they can even request a hearing. Because of this, WSJ explains that companies with stock prices below $1 can trade on Nasdaq for at least one year or more.

Experts point out that this situation exposes ordinary investors to risks. A stock price below $1 is evidence of serious problems in the company’s business, but the fact that these companies are listed on Nasdaq, where global blue-chip companies like Apple and Microsoft (MS) are traded, can mislead investors, according to their analysis.

Some experts argue that penny stocks trading below $1 should be traded on over-the-counter (OTC) markets rather than stock exchanges like Nasdaq.

Rick Fleming, a former official of the U.S. Securities and Exchange Commission (SEC), said, "Stock exchanges have a duty to screen so that only proper companies that investors can be interested in are listed," adding, "The fact that many companies fail to meet the standards can lead to a loss of trust in the market itself."