Korea’s bourse operator said Wednesday it will strengthen monitoring of stocks with small number of shares available for trading on the market in a bid to prevent speculative investments and high volatility.

According to Korea Exchange, it will halt trading of stocks when their floats come below a certain level after filing a change in the number of shares following capital reduction. 

Starting March 28, the bourse operator will suspend trading of stocks in which the number of their free floats account for less than 2 percent of the total outstanding shares, or 100,000 shares, on the KOSDAQ.

A similar rule will be applied to stocks listed on the main bourse KOSPI. A trading suspension will be implemented when a stock has below 100,000 floats, or free floats account for less than 1 percent of the total shares.

The ban will be lifted when the number of free floats exceeds 300,000 shares through a capital expansion or release of shares under lock-up, it said.

The measure comes as investors questioned the stability of the country’s secondary bourse over an unexplainable rally of a loss-making apparel firm’s shares.

The mysterious rally of Codes Combine shares between March 2 and March 15 pushed its stock price 559 percent higher.

Market experts pointed out that the stock’s small free float appears to be the reason behind its high volatility.

Only 0.6 percent of its total outstanding shares, or 250,000 shares, are publicly trading, as the rest is locked up in the hands of the firm’s largest shareholder Cotton Club and creditors.

By Park Han-na (hnpark@heraldcorp.com)