[Asia Economy Reporter Song Hwajeong] The Korea Exchange will take a more proactive approach to investor protection by strengthening its response to new types of unfair trading and establishing market surveillance measures for algorithmic trading.
The Korea Exchange Market Surveillance Committee (MSC) announced its "2020 Major Business Plan" on the 26th, presenting "early detection and rapid identification of new types of unfair trading" as the top priority for market surveillance this year.
First, the plan is to enhance market trust through the swift detection of unfair trading. The MSC aims to preemptively block market disruptions caused by various thematic stocks, including those related to COVID-19 and political theme stocks linked to the general elections, and to prevent investor damage from companies at risk of delisting due to financial statement issues during the settlement period. Accordingly, the MSC is closely monitoring about 40 related stocks that have seen sharp increases in stock prices and trading volumes since the outbreak of COVID-19. Additionally, with the settlement period approaching, the MSC is keeping an eye on the potential development of corporate raid-type unfair trading related to undisclosed information on settlement results, changes in major shareholders, large-scale fundraising, and new business ventures.
The response to new types of unfair trading will be strengthened. Through planned surveillance and other measures, the MSC intends to detect emerging unfair trading activities, such as the increasing corporate raid-type unfair trading, at an early stage and quickly assess suspicions to minimize negative impacts on the market and investor damage. To this end, the MSC will focus on monitoring unfair trading targeting companies, such as acquisitions of listed companies, and will conduct linked surveillance among stocks to prepare for corporate raiders’ sprawling acquisitions. An MSC official explained, "We will strengthen monitoring of suspicious stocks related to past unfair trading offenders such as corporate raiders or major shareholders and executives of delisted stocks to detect unfair trading early." Furthermore, to respond to new types of unfair trading such as false or exaggerated purchase recommendation SMS messages, the MSC plans to establish a cooperative system with the Korea Internet & Security Agency (KISA) and introduce a system to designate investment caution stocks related to spam SMS.
In response to changes in the trading environment, the MSC plans to revise surveillance-related standards and improve the surveillance notice system and member sanction processes to enhance the effectiveness of self-regulation. An MSC official stated, "We will introduce new surveillance systems to prevent acts that undermine fair trade order in advance and strengthen inspections of surveillance on issues with significant market impact such as short selling and compliance with business regulations by liquidity providers."
Additionally, to strengthen the prevention system against unhealthy orders, the MSC will introduce guidance surveillance. Guidance surveillance involves conducting audits focused on the appropriateness of internal controls and unfair trading monitoring systems, followed by measures such as improvement recommendations. The MSC will prioritize guidance surveillance on the sharing and management status of accounts refused for consignment among members, the actual operation of members’ product accounts, and will conduct regular inspections on market issues such as members’ short selling order management systems and avoidance of the uptick rule.
The MSC will also establish market surveillance measures in response to the increase in algorithmic trading. It plans to develop a comprehensive management plan for algorithmic trading surveillance that aligns with global standards without hindering market activation, as well as efficient market surveillance techniques for complex algorithmic trading and a market-friendly member surveillance system. Accordingly, the MSC will introduce a dedicated monitoring officer system for algorithmic accounts and promote the enhancement of ultra-short-term unhealthy trading surveillance capabilities.
Investor protection activities will also be further strengthened. The MSC plans to enhance activities to eradicate unfair trading and protect investors by conducting investor protection week campaigns linked with the International Organization of Securities Commissions (IOSCO), preventive education by region in five major cities nationwide, and promoting voluntary reporting and whistleblowing of unfair trading.
An MSC official said, "We will do our best to carry out the major projects for 2020 without fail to establish a fair and trusted market order."
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