Korea Exchange Focuses Hearing on Unfair Trading Using CFDs

[Asia Economy Reporter Hyungsoo Park] The Market Surveillance Committee of the Korea Exchange announced on the 18th that it will conduct a focused investigation into unfair trading practices involving Contracts for Difference (CFD).

CFD is an over-the-counter derivative product where investors do not actually hold the underlying investment product but settle only the profits or losses based on future price fluctuations. It is available only to professional investors. Investors can enter into a CFD contract with securities firms and purchase stocks up to 10 times their margin (principal). Since the relaxation of conditions for individual professional investors a year ago, the number of investors using CFDs has increased. From January to August this year, the average monthly CFD trading volume was 1.8713 trillion KRW, a 132% increase compared to last year's average monthly trading volume of 805.3 billion KRW.

Because large-scale leveraged investments are possible and actual stocks are not held, CFDs can also be used as a means to evade regulations such as capital gains tax and disclosure obligations on shareholdings.

The Korea Exchange explained that unfair trading cases such as insider trading using the anonymity of CFDs and market manipulation have been detected, necessitating focused investigations.

One case involved selling shares of Company C to avoid major shareholder capital gains tax regulations, then purchasing those shares through a CFD account, and conducting opposite transactions the following year.

The Korea Exchange established a manual for investigating unfair trading, including methods for analyzing CFD accounts, which has been in effect since the 16th. They plan to conduct focused investigations when suspicious transactions are detected.

They are conducting focused monitoring on 48 stocks, including rapidly rising political theme stocks. Additional investigations will also be conducted on insider trading using favorable information and unfair trading involving undisclosed positive information related to the novel coronavirus disease (COVID-19).

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