Financial Authorities Strengthen Crackdown on Unfair Trading of Presidential Election Theme Stocks

[Asia Economy Reporter Ji Yeon-jin] Financial authorities will strengthen inspections and crackdowns on unfair trading activities related to 'presidential election theme stocks' ahead of the 20th presidential election scheduled for next month.

The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced on the 2nd, "The stock prices of presidential election theme stocks tend to fluctuate sharply based on political issues regardless of the companies' actual performance."

According to the FSC, during the 18th presidential election, the stock prices of election theme stocks continuously rose until three months before the election day and then declined, while during the 19th presidential election, the prices fluctuated until just before the election.

In both the 18th and 19th presidential elections, the FSC noted that as the election day approached, the prices of theme stocks sharply dropped and returned to previous levels, urging investors to exercise caution.

There have also been cases where investors suffered damages due to unfair trading activities such as spreading false information related to presidential election theme stocks, resulting in sanctions by the Securities and Futures Commission (SFC).

Nineteen individuals, including individual investor A, conspired to concentrate purchases on several stocks identified as presidential election theme stocks to gain capital gains. They manipulated prices using methods such as 'locking the upper price limit' and 'submitting fictitious orders' to realize profits and were reported to investigative authorities. Locking the upper price limit is a tactic where the closing price is intentionally set at the upper limit to induce additional purchases from investors expecting further price increases the next day.

Financial authorities have recently strengthened monitoring of unfair trading related to major theme stocks associated with presidential candidates, disclosures, or rumors. In particular, since November 5 of last year, they have operated a 'Presidential Election Theme Stock Intensive Reporting Period' to receive related reports.

So far, four reports of unfair trading related to presidential election theme stocks have been received, and the financial authorities stated, "If any suspicion is found, we will promptly investigate and take action."

The authorities also plan to enhance damage prevention activities by promptly issuing market warnings for stocks expected to cause investor losses due to sharp price fluctuations.

Meanwhile, the SFC announced that in the fourth quarter of last year, it sanctioned 25 individuals and 19 corporations for a total of 16 unfair trading cases. Among them, 18 individuals and 4 corporations were reported to the prosecution. Some received fines (4 individuals, 7 corporations) or warnings (3 individuals, 8 corporations).

Major sanctions included cases where insiders used undisclosed important information learned as outside directors to sell their shares early to avoid losses, and cases where operators of stock recommendation chat rooms encouraged the purchase of specific stocks or manipulated prices by buying specific stocks through acquaintances' securities accounts.

If you discover suspicious unfair trading activities involving stocks, including presidential election theme stocks, you can immediately report them to the FSC, FSS, or Korea Exchange. Depending on the accuracy and importance of the report, rewards of up to 2 billion KRW may be granted.