Exchange Guides Characteristics of Companies Vulnerable to Unfair Trading... "Must Examine Stock Trends and Shareholding Structure"

Characteristics of Companies Vulnerable to Unfair Trade with High External Financing
Monitoring Committee "Currently Monitoring for Unfair Trade"

[Asia Economy Reporter Gong Byung-sun] The Korea Exchange (KRX) has warned that companies on the verge of delisting are highly likely to be vulnerable to unfair trading if their stock prices fluctuate abnormally or if changes in shareholding structures occur close to the deadline for submitting audit reports. The KRX urged investors to carefully gather accurate information about listed companies before making investment decisions.

On the 4th, the KRX Market Surveillance Committee announced the "Key Characteristics of Companies Vulnerable to Unfair Trading." The announcement aims to prevent investor losses caused by unfair trading activities as the deadline for submitting audit reports for companies with December fiscal year-ends approaches.

The committee identified the main characteristics of companies vulnerable to unfair trading as ▲ abnormal rapid changes in stock price and trading volume ▲ changes in shareholding structure ▲ increased external financing.

If stock prices fluctuate rapidly without reason as the audit report submission deadline approaches, this is considered an abnormal rapid change in stock price and trading volume. In particular, if stock prices rise despite negative disclosures such as deteriorating fiscal results, the company is likely vulnerable to unfair trading.

Additionally, if insiders such as major shareholders and executives dispose of their shares before internal settlement and audit report submission, changes in shareholding structure should be suspected. Companies with low major shareholder equity ratios and frequent changes in management are even more vulnerable to unfair trading.

Companies that rely heavily on large-scale external financing such as convertible bonds, bonds with warrants, and third-party allotment capital increases rather than direct financing from operating activities also exhibit characteristics of companies vulnerable to unfair trading. Especially in cases where it is difficult to identify the recipients of stock-related bonds and third-party allotments, such as investment associations or non-externally audited companies, these are typical features of companies vulnerable to unfair trading.

The committee also explained major types of unfair trading related to vulnerable companies. First is loss avoidance through pre-sale of shares held by insiders. This refers to insiders of companies at risk of delisting selling their shares before submitting audit reports. Next is price manipulation through dissemination of false or exaggerated information. This involves spreading false or exaggerated financial information around the time of deteriorated internal fiscal results announcements to boost stock prices.

The committee plans to closely monitor for unfair trading and respond swiftly if signs of unfair trading are detected, such as speculative forces spreading false information to artificially inflate stock prices. A committee official said, "We hope investors refrain from following price surges blindly by referring to the characteristics of companies vulnerable to unfair trading. It is advisable to verify accurate information about listed companies before investing and proceed with caution."