Financial Authorities Announce
"Capital Market Unfair Trading Eradication Action Plan"
Financial authorities are strengthening their response system to unfair trading, such as stock price manipulation, by establishing a "Joint Response Team." The team will enable three organizations?the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Korea Exchange?to collaborate and respond swiftly to major unfair trading activities.
On July 9, the FSC announced the "Capital Market Unfair Trading Eradication Action Plan" at the Korea Exchange in Yeouido, Seoul, together with the FSS and the Korea Exchange.
The action plan is a follow-up measure to President Lee Jaemyung's directive to prepare countermeasures against stock price manipulation. President Lee has repeatedly stated, since his candidacy, that he would take a firm stance against unfair trading, including stock price manipulation.
First, financial authorities have decided to establish the Joint Response Team. The team plans to swiftly handle cases involving power brokers, major shareholders and executives, and incidents involving the misuse of social media or false reports.
The team will be set up within the Korea Exchange and will be led by a deputy governor of the FSS. It will consist of approximately 35 members: 4 from the FSC, 18 from the FSS, and 12 from the Korea Exchange. The team will operate as a collaborative system based at the Korea Exchange, enabling rapid handling of urgent cases. This measure addresses concerns that differences in authority among institutions have led to delays in responding to incidents.
Lee Yoonsu, Standing Commissioner of the FSC's Securities and Futures Commission, explained, "The team will be composed of personnel from each participating agency who are actually responsible for market surveillance, review, and investigation, and who possess sufficient expertise. We also plan to expand personnel to ensure that the existing response systems of each agency, including ongoing investigations and reviews of important cases, do not experience any gaps due to staff assignments."
The market surveillance system of the Korea Exchange will also undergo a fundamental overhaul. Surveillance will shift from the current "account-based" system to a "person-based" system. The account-based approach made it difficult to identify connections between the same individuals and resulted in an excessive number of surveillance targets. To address this, the plan is to combine account information with encrypted resident registration numbers, thereby transitioning the unfair trading surveillance system from "account-based" to "person-based."
The financial authorities stated, "By converting the surveillance system to a person-based approach, the number of surveillance and analysis targets will decrease, greatly enhancing the efficiency of market monitoring. It will also become much easier and faster to identify the same individual, determine the rate of market involvement, and detect wash trades, which were difficult to ascertain under the previous account-based system."
Additionally, artificial intelligence (AI) technology will be integrated to improve the market surveillance system. The current system, which has been in place for seven years, is deemed inadequate for responding quickly to the increasingly sophisticated stock price manipulation techniques seen recently. Therefore, the authorities aim to enhance indicators for determining the likelihood of unfair trading by analyzing past deliberation results of the Market Surveillance Committee using AI.
Furthermore, the goal is to implement a "one strike out" policy, immediately removing perpetrators of unfair trading such as stock price manipulation through active administrative sanctions. Recently, the Securities and Futures Commission decided to file a criminal complaint with the prosecution against Bang Si-hyuk, the chairman and major shareholder of HYBE, on suspicion of fraudulent transactions, highlighting a series of major unfair trading cases involving major shareholders and executives.
Recently, financial authorities have introduced measures such as payment suspensions, fines, and restrictions on trading financial investment products or appointing executives for those involved in unfair practices. By actively utilizing these newly introduced administrative sanctions, they intend to permanently expel unfair actors from the capital market. If illegal gains are discovered in a suspect's account, the plan is to freeze them immediately and impose fines of up to twice the amount of illicit profit.
In addition, the delisting criteria for insolvent listed companies will be significantly strengthened. Requirements for market capitalization and sales will be raised. Companies will be delisted immediately if they receive a substandard audit opinion for two consecutive years. For KOSDAQ-listed companies, the delisting review process will be streamlined from a three-stage to a two-stage system, increasing the efficiency of the delisting process.
Lee Yoonsu, Standing Commissioner, stated, "This action plan is a fundamental measure to establish the 'one strike out' principle for unfair trading. We will swiftly implement actionable measures such as strengthening inter-agency cooperation and promptly removing insolvent companies, and will also accelerate necessary institutional improvements."
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