[Inside Chodong] Why Insider Punishment Needs to Be Harsher

Eradicating the Vicious Cycle of Unfair Stock Trading Using Insider Information
Stronger Penalties Needed to Break the Chain

"If I could time slip, I would buy OO stocks."

This is a common answer to the question of what people would do if they could go back in time through time slip. For example, buying stocks that will significantly rise in the future or purchasing land that will skyrocket in value to make a profit.

This is possible because they know the information earlier than others. Knowing certain facts before others is a very powerful advantage. The drama The Youngest Son of a Conglomerate Family vividly illustrates this. The protagonist, Jin Do-jun, who goes back in time, acquires land that will increase in value due to redevelopment, makes money, and then invests that money in companies whose stock prices will soar tremendously later. He also invests in movies that become huge hits, accumulating enormous wealth. Because he came from the future, he used information only he knew to grow his fortune.

Since going back in time is impossible in reality, inside information that insiders can obtain holds similar power. CEOs, executives, and employees of listed companies inevitably know company information before general investors. Using this, they have opportunities to sell stocks early to avoid losses or buy stocks early to gain profits.

Knowing information earlier than others gives a significant advantage to those who have it. Conversely, ordinary people who cannot access information early face an unfair environment from the start. It is a tilted playing field.

Such cases continue to occur. Recently, employees of BTS's agency were handed over to prosecutors on suspicion of trading stocks early using insider information. On the day after BTS announced a temporary suspension of group activities in June last year, HYBE's stock price plunged 24.87% compared to the previous trading day. For individual investors, it was like a bolt from the blue, but employees who knew the information in advance were able to avoid losses.

Legally, stock trading using insiders' undisclosed information is strictly prohibited, but cases of pursuing private gain through this have not been eradicated. This is due to lenient punishments. Even when caught, most cases result in paying fines much lower than the profits gained from undisclosed information and being released. From 2016 to 2020, among cases reported or referred by the Financial Services Commission to prosecutors related to unfair trading including the use of undisclosed information, the non-prosecution rate reached 55.8%. Even when prosecuted and tried, the rate of receiving prison sentences was only 59.4%. Since nearly half of the cases do not even lead to prosecution, unfair acts using undisclosed information are committed without hesitation. Lenient punishments have created a misguided belief in the stock market that "if you endure hardship once, you will have money to live comfortably for life."

Following the recent stock price crash triggered by Soci?t? G?n?rale (SG) Securities that shook the stock market, the political sphere has moved to strengthen regulations to eradicate unfair trading. As always, it is hard to shake off the feeling that this is a case of "locking the barn after the horse is lost." This time, we hope for strong legislation that can properly regulate unfair trading that hurts retail investors. The perception should shift from "if you endure hardship once, you will have money for life" to "if you engage in unfair trading, you will be ruined."