Intense Monitoring of Institutional Investors' Last-Minute Stock Price Boosting Aimed at Earnings

Artificial and Temporary Stock Price Boosting Targeting Year-End Performance Review Prevails
Korea Exchange Intensifies Monitoring of Institutional Investors and Major Shareholders

Big Brother (Photo by Getty Images Bank)

[Asia Economy Reporter Minwoo Lee] Intensive monitoring will be conducted on acts where institutional investors or major shareholders artificially inflate stock prices ahead of the fiscal year-end.

The Korea Exchange Market Surveillance Committee announced on the 25th that it will conduct focused monitoring for one month next month on stocks suspected of "window dressing" at the end of this year.

Window dressing refers to actions by institutional investors or major shareholders who artificially raise the stock prices of their holdings ahead of the fiscal year-end to improve fund performance or financial results. Since stock prices are artificially driven up, this can cause harm to honest investors and distort corporate value. Window dressing has been abused as a means to distort institutional investors' fund management performance or inflate the financial results of listed companies to evade management improvement measures by financial authorities or market actions by the exchange.

Accordingly, the Market Surveillance Committee will operate an intensive monitoring period next month, and promptly conduct additional reviews on detected stocks to notify financial authorities.

Previously, the committee detected multiple cases of window dressing involving major shareholders and institutional investors at the fiscal year-end of the 2018-2019 business years. While such activities used to occur intensively within 2-3 days of the fiscal year-end, recently various methods have been steadily carried out over a one-month period before the fiscal year-end.

Trend of Transaction Involvement Rate for Stocks Suspected of Window Dressing at the End of Last Year (Provided by Korea Exchange)

At the end of 2019, Company B, the major shareholder of listed Company A, induced an approximately 18% increase in Company A’s stock price over about 8 days through submitting high-priced bids, compared to early December of that year, after Company A’s financial performance deteriorated. As a result, the value of Company A shares held by Company B rose, improving Company B’s financial statement profitability.

At the end of 2018, C Asset Management operated four funds including shares of Company D, and induced about a 16% increase in Company D’s stock price over 13 days through submitting high-priced purchase bids compared to early December of that year. Consequently, the returns of C’s funds holding Company D shares were artificially increased.

A Market Surveillance Committee official stated, "Through real-time stock price monitoring at the fiscal year-end, we will take preventive measures against accounts (groups) that induce artificial price increases and promptly analyze suspected window dressing stocks to notify supervisory authorities. If you become aware of suspicious unfair trading activities, please actively report them to the Market Surveillance Committee’s Unfair Trading Reporting Center."

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