300 companies will be delisted from the stock market, the exchange to take such a drastic decision

News Topical, Digital Desk : The Chief Executive Officer of the Korea Exchange has stated that out of the approximately 2,700 listed companies in the country, close to 300 could face de-listing next year. This means that the stock of these companies will cease to be available for trade in the stock exchange.

This step is not about a particular company or sector but aims at strengthening investor trust and a stronger market.

The issue that arises now is that when a company is already listed in the exchange, why is there a need for it to be delisted? This is where one has to remember that the stock market is not just a market for companies but it is also a market of investor’s confidence. If companies continue to underperform or breach regulations and fail to deliver meaningful gains for their investors, it could bring a bad name for the entire market. Hence it appears that Korea Exchange is currently in the market cleansing mode.

What it is doing is essentially wanting only those companies that is of use to the investor to be present in the market. 300 companies.. How significant are they?

300 companies being delisted from the 2,700 in operation is a lot. Out of every 100 companies on the stock exchange, on average 11 would be delisted. That’s why the news has been getting attention across global stock markets.

What does delisting imply

Many small investors are exposed to the terminology but may not be aware of its implication. When a company’s share ceases to trade on the stock exchange it’s the “delisting”.

You can not buy or sell the shares in a normal manner.

A company would be delisted from the exchange if it failed to comply with the regulations of the bourse, or is removed from the exchange for some reason. A drive to boost investor’s confidence Korea Exchange said that the move is intended to inject investor’s confidence in the market. While most countries have in the past tended to focus on increasing the number of companies on their stock exchanges, global stock markets are currently more concerned about the quality of companies being traded in them. Better quality companies and compliance to standards and regulations would bring in more investors confidently.

What about “Korea Discount”

In what can be considered as another noteworthy statement, the Chairman of the Korea Exchange stated that, "Korea Discount” has largely ended now.

That puts to question what is this Korea Discount

In simple words, for a long time it was opined that, although South Korean companies perform well and are of good quality, they failed to command a similar price as companies in other markets of the world.

Investors felt that improvements were required in areas of Corporate Governance, shareholder protection, and compliance standards. For this reason, these companies failed to attain their true market value. However, Korea Exchange is claiming that the situation has improved and has ended the Korea Discount phenomenon in the main.

Strict regulation would follow if needed Korea Exchange also clarified that stricter regulations could be put in place if needed.

The drive might just be a starting one and should it be necessary more actions would be undertaken to restore quality in the market. The message to companies is loud and clear - it will no longer just be about being listed, performance will also matter.

What does it mean for the world

The above news is not exclusive to Korea.

Stock markets globally are all aiming to woo their investors.

Corporate Governance, transparency and shareholder rights have now become priorities in every leading market. And Korea’s example will serve as an eye-opener for other markets as well.

What do ordinary investors need to understand

The news provides us with one important lesson as ordinary investors. We should not solely depend on the price of the shares before buying. We should also understand the operation of a company and if the same is in compliant with regulations.

This step taken by the Korea Exchange implies that global stock markets are all on the lookout for a reliable, quality company and not merely a big company.

This is why news of 300 companies being delisted is not just mere news. This message of increased focus on quality for global stock exchanges is bold and significant. And if this proves to be successful it would undoubtedly add more trust in South Korean stock market.