[Reporter’s Notebook] Is the Comprehensive Stock Trading Investigation Just Another Display of Bureaucracy?

The capital market is in turmoil due to the stock price manipulation scandal involving La Deok-yeon and his associates. While La Deok-yeon and the group responsible for market manipulation bear primary responsibility, the financial authorities cannot escape accountability for failing to properly operate the market surveillance system.

About a month after the incident broke, the financial authorities' first measure is a 'comprehensive investigation.' The investigation will proceed on two tracks. First, they will open all 3,400 or so Contracts for Difference (CFD) accounts used as tools for stock price manipulation to check if there are any successful cases using similar methods. The financial authorities say they will complete this work within two months to root out the stock manipulation forces. Next, they will thoroughly examine stock trading data from the past 10 years to see if there have been any illegal activities that artificially inflated stock prices over a long term of one or two years or more.

Opening CFD accounts to investigate illegal cases and using the findings to improve the CFD system is a purpose that is fully understandable. However, whether digging through 10 years of stock trading data is urgent and important is questionable. This issue arose from consultations between the People Power Party and the Financial Services Commission.

Some are skeptical about conducting a comprehensive investigation of 10 years of trading for over 2,600 stocks. Since the Korea Exchange’s unfair trading monitoring targets were stocks that surged sharply in a short period, the comprehensive investigation target is expected to be stocks whose prices rose over a long period. In the past 10 years, many stocks in the domestic market have seen large increases in trading volume due to concentrated funds in specific thematic stocks such as pharmaceuticals and bio, metaverse, and secondary batteries. More recently, after the COVID-19 outbreak in 2020, most stocks plunged and then continued a long-term upward trend. Considering all these events, it is questionable whether picking out stocks that have risen slightly and checking for unfair trading is the highest priority task to pursue now.

A member of the National Assembly criticized, “Since the CFD incident occurred, I have repeatedly emphasized the importance of system improvement, and the area where manpower and time should be invested now is the system improvement part,” adding, “Bringing several years of data for a comprehensive investigation is nothing more than a showy act.”

While a comprehensive investigation is necessary, it is right to place the emphasis on system improvement and restoring trust. Investigations require considerable manpower and time. Although learning from past mistakes is good, it would be more efficient now to put heads together to see if similar problems could arise in other over-the-counter derivatives and what improvements can be made to the CFD system. Isn’t this the way to strengthen the barn after losing the cow?