Financial Services Commission, Prosecutor's Office, Financial Supervisory Service, and Korea Exchange
Joint Council on Unfair Trading Investigation and Hearing Period Held
Financial authorities and related agencies have determined that new forms of unfair trading may emerge in a multi-market system following the launch of Alternative Trading Systems (ATS), and they are strengthening proactive monitoring and response systems. In addition, they plan to promptly investigate unfair trading abuses related to private placement convertible bonds (CBs), which have been consistently pointed out, and consider institutional improvements.
On the morning of the 24th, the Financial Services Commission, the Prosecutor's Office, the Financial Supervisory Service, and the Korea Exchange held the "2025 1st Unfair Trading Investigation and Hearing Period Council (Joshimhyup)" at the Government Complex Seoul to discuss major issues related to unfair trading. Joshimhyup is a consultative body designed to establish an organic response system to unfair trading, covering market surveillance and hearings (Exchange), investigations (Financial Services Commission and Financial Supervisory Service), prosecution and notification (Financial Services Commission’s Securities and Futures Commission), and investigation and indictment (Prosecutor's Office).
At the meeting, the integrated market surveillance operation plan for multiple markets was reviewed in light of the significant changes in the capital market environment following the launch of the ATS on the 4th. Previously, only the Korea Exchange was responsible for surveillance, but now an integrated surveillance system is needed to detect unfair trading linked across markets.
Currently, the Exchange is strengthening preventive activities in line with the extended trading hours under the multi-market system and is intensively monitoring unfair trading linked across markets by establishing new detection criteria. Participating agencies agreed to operate a precise market monitoring system and to swiftly and strictly sanction unfair trading in accordance with laws and principles to actively support the creation of a fair capital market environment.
Measures related to unfair trading abuses involving private placement CBs were also discussed. The annual issuance volume of private placement CBs peaked at 9.3 trillion KRW in 2021 and has been declining to 5.8 trillion KRW last year. At the meeting, recent major cases that have led to prosecution were reviewed, including selling shares after converting CBs before a refusal of audit opinion disclosure (use of undisclosed information), announcing false new business projects for the purpose of high-price sales (fraudulent trading), and private use after large-scale CB issuance (private use).
Financial authorities plan to continuously monitor private placement CB cases based on trading psychology, complaints, and reports to eradicate such unfair trading, promptly conduct related investigations, and ensure smooth prosecution and notification to the Prosecutor's Office. They will also continue to review the need for institutional improvements in the future.
In addition, regarding the amended Capital Markets Act that allows financial authorities and related agencies to issue financial investment product trading restriction orders to unfair trading and illegal short-selling offenders, a “Guideline on the Application of Financial Investment Product Trading Restriction Orders (Draft)” has been prepared to enhance predictability and resolve legal uncertainties.
With the enforcement of the amended Capital Markets Act, from the 23rd of next month, unfair trading and illegal short-selling offenders may be subject to financial investment product trading restriction orders for up to five years. Persons subject to restriction orders will, in principle, be prohibited from opening accounts, trading, lending, or borrowing financial investment products, while exceptional disposal of financial investment products unrelated to illegal acts held prior to the restriction order will be allowed. Financial authorities plan to distribute the guideline to financial investment businesses and related agencies.
Furthermore, the Financial Services Commission’s Securities and Futures Commission (SFC) will strengthen disclosure of enforcement actions starting this year. Currently, after meetings conclude, major unfair trading enforcement actions are distributed as press reference materials. Additionally, a webpage that allows easy access to information on unfair trading cases and types is also being prepared. The Financial Services Commission emphasized, "Participating agencies in Joshimhyup reaffirm the recognition that unfair trading is a serious crime that undermines investor trust in the capital market and shakes the foundation of the capital market, and they will continue to strictly sanction unfair trading in accordance with laws and principles."
Meanwhile, as of the end of November last year, the Financial Services Commission and the Financial Supervisory Service are investigating 200 cases of unfair trading in the capital market. Also, the hearings conducted by the Exchange on signs of unfair trading detected during market surveillance averaged about 14 cases per month from October last year to February this year. During the same period, the number of market alerts and preventive measures were approximately 256 and 538 cases per month, respectively.
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