Financial Supervisory Service Conducts Search and Seizure at NH Securities... Also Inspects Unfair Trading in High-Frequency Trading

Securing Materials Related to 'Pado' Listing
On-site Inspection of ETF Liquidity Providers (LP) Also Underway

Financial Supervisory Service building in Yeouido, Seoul. Photo by Younghan Heo younghan@

The Financial Supervisory Service (FSS) has launched an inspection into unfair trading related to ultra-high-frequency trading. Alongside this, the Capital Market Special Judicial Police (Special Judicial Police) conducted a raid on NH Investment & Securities in connection with the listing of Padu.

According to the financial investment industry on the 19th, the FSS is conducting an internal control inspection related to high-frequency and ultra-high-frequency trading targeting securities firms. Starting from Shinhan Investment Corp. on the 18th, inspections are scheduled for three securities firms this month.

This inspection follows allegations raised by individual investors during the "Short Selling Forum" chaired by FSS Governor Lee Bok-hyun on the 13th, claiming that unfair trading frequently occurs in the process of ultra-high-frequency trading using Direct Market Access (DMA) services. DMA refers to a system where institutional investors or foreigners send orders directly to the exchange without going through securities firms, primarily for ultra-high-frequency algorithmic trading.

Additionally, on-site inspections regarding short selling status will be conducted targeting six major securities firms that act as liquidity providers (LPs) in the Exchange-Traded Fund (ETF) market.

Meanwhile, the Special Judicial Police raided the headquarters of NH Investment & Securities and secured materials related to Padu's listing. Padu, which entered the KOSDAQ market in August last year, has been embroiled in controversy over allegations of "listing inflation." During the listing preparation process, it recorded an estimated annual revenue of 120.3 billion KRW last year, but the cumulative revenue for the third quarter of last year was only 18 billion KRW. The third-quarter revenue was 321 million KRW, a 98% decrease compared to the same period the previous year, shocking the market.