The financial authorities have established a legal basis to shift the market surveillance system from an account-based approach to an individual-based approach in response to unfair trading practices such as stock price manipulation. The standards for imposing fines on unfair trading will also be strengthened so that fines can exceed the amount of unjust gains.
On July 23, the Financial Services Commission announced that it would be proposing amendments to the Enforcement Decree of the Financial Investment Services and Capital Markets Act and the Capital Market Investigation Regulations to this effect. These amendments are a follow-up measure to the "Action Plan to Eradicate Unfair Trading in the Capital Market" announced on July 9. After a legislative and regulatory notice period from July 24 to September 2, the amendments are scheduled to be implemented in October following approval by the Cabinet.
First, the Korea Exchange's market surveillance system will be converted from an account-based to an individual-based system. Currently, the Exchange monitors suspicious trading activities based on accounts without using personal information, making it difficult to identify whether accounts are linked to the same individual.
Accordingly, the proposed amendment to the Enforcement Decree of the Capital Markets Act establishes a legal basis for information processing, allowing the Exchange's Market Surveillance Committee to receive pseudonymized personal information and link it to accounts in order to carry out market surveillance duties.
The financial authorities expect that the number of surveillance targets will decrease by about 39%, thereby increasing the efficiency of market surveillance. They also anticipate that it will be possible to more quickly identify whether accounts are linked to the same individual, the degree of involvement in price manipulation, and whether wash trading has occurred.
The standards for imposing fines in cases of unfair trading and disclosure violations will also be strengthened. Currently, the basic fine for the three major unfair trading practices (use of undisclosed important information, price manipulation, unfair trading) is calculated at 0.5 to 2 times the amount of unjust gains, and for market order disruption acts, at 0.5 to 1.5 times, depending on the severity of the violation.
The amended regulations will raise the fine ratios so that, for the three major unfair trading practices, the basic fine will be set at 1 to 2 times (the statutory maximum) the amount of unjust gains, and for market order disruption acts, at 1 to 1.5 times (the statutory maximum).
In addition, the standards for imposing fines for disclosure violations will be tightened. Currently, the basic fine for disclosure violations can be set at 20% to 100% of the statutory maximum under the Capital Markets Act, depending on the type of violation. This lower limit will be raised to 40% to 100%.
Furthermore, the amendments include provisions to increase sanctions such as fines and restrictions on financial investment product transactions and executive appointments when employees of financial institutions engage in unfair trading in the course of their duties, such as using undisclosed information.
The Financial Services Commission stated, "Through these amendments, we expect to be able to detect unfair trading more quickly and respond more strictly, thereby contributing to the establishment of a fair market order and the protection of investors."
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