Financial Services Commission, "Introducing Penalties for Unfair Trading... Strengthening Investigation and Punishment"

Financial Authorities Hold First Meeting of Task Force... Announce Comprehensive Measures to Eradicate Illegal and Unsound Practices in the Securities Market

[Asia Economy Reporter Eunmo Koo] Financial authorities are expanding administrative sanctions, including the introduction of fines, for unfair trading practices such as insider trading, market manipulation, and fraudulent transactions, which until now were only subject to criminal penalties.

On the 19th, the Financial Services Commission (FSC) held the first meeting of the Securities Market Illegal and Unsound Practices Task Force and announced a comprehensive plan to eradicate illegal and unsound practices in the securities market. Considering the recent increase in stock market volatility and the concentration of liquidity in the securities market, raising concerns about illegal and unsound activities, the FSC, the Financial Supervisory Service (FSS), and the Korea Exchange (KRX) formed the task force to conduct focused inspections on vulnerable areas and improve and supplement institutional shortcomings.

The task force plans to strictly punish unfair trading by enabling related agencies to respond swiftly and cooperatively at each stage of ‘prevention → investigation → punishment.’ It will implement rapid market alerts and preventive measures for stocks suspected of unfair trading and strengthen inter-agency cooperation by establishing an integrated case management system. The task force also plans to enhance penalties by imposing heavier sanctions on repeat offenders and financial investment firms and their executives involved in unfair trading. Additionally, it will set a focused response period (October 2020 to March 2021) to tackle illegal and unsound trading related to various theme stocks and short selling.

Focused inspections will also be conducted on potential vulnerable areas that could serve as links to various illegal and unsound activities in the securities market. For no-capital mergers and acquisitions (M&A), inspections will be carried out at each stage?from no-capital acquisition to fund raising and usage to profit realization?to check for false disclosures, accounting fraud, and unfair trading. The task force will also examine the possibility of insider trading and fraudulent transactions involving convertible bonds (CB) issuance. For quasi-investment advisory firms, it will inspect false and exaggerated advertisements and compliance with regulations to restore market order.

Finally, institutional improvements to prevent recurrence of illegal and unsound activities will be pursued simultaneously. The task force plans to fully introduce fines for unfair trading, which currently only carry criminal penalties, and consider diversifying effective sanctions such as restrictions on capital market participation, financial transaction bans, and suspension orders for investors by benchmarking major overseas cases.

Furthermore, the task force announced plans to strengthen supervision of no-capital M&A by enhancing disclosure obligations related to corporate acquisition funds and imposing fines for violations of large shareholding reporting obligations (the 5% rule). It will also improve the soundness of the convertible bond market by mandating prior disclosure for private convertible bond issuance and strengthen reporting obligations for quasi-investment advisory businesses.

The task force is composed of three subcommittees focusing on eradicating unfair trading, conducting focused inspections on vulnerable areas, and institutional improvements. It plans to monitor implementation status monthly from now until the end of March next year.

This content was produced with the assistance of AI translation services.