Caught in Large Family Transactions Due to Greed for Securities Firm Event Prizes

Exchange Reviews 17 Cases of Unfair Trading Including Use of Undisclosed Information in Hyundai Motor Apple Car Collaboration
Financial Services Commission to Complete Investigation of Illegal Short Selling by 4 Market Makers This Month
Fines Imposed on 6 Individuals for Market Manipulation Including False Orders

[Asia Economy Reporter Ji Yeon-jin] The Financial Services Commission, Financial Supervisory Service, Korea Exchange, and Seoul Southern District Prosecutors' Office held the 2nd Unfair Trading Investigation and Deliberation Agency Meeting (Josimhyeop) on the 11th to review major issues related to unfair trading in the stock market, including price manipulation-type market order disruption acts.

Josimhyeop is a consultative body composed of multiple institutions that make up the capital market unfair trading investigation system, including deliberation (Korea Exchange), investigation (Financial Services Commission and Financial Supervisory Service), and prosecution (Prosecutors' Office). It reviews the current status and issues of deliberation and investigation and promotes key cooperation tasks. It is held monthly as individual investors' participation in the stock market has increased recently.

According to Josimhyeop's review, the number of abnormal trading cases, such as market warnings issued for short-term rapid changes or stocks concentrated in a small number of accounts and large repetitive fictitious order single-share trading, decreased last month. However, theme stocks related to COVID-19, untact (contactless), and politics (by-elections and re-elections) increased from 388 in January to 406.

The Korea Exchange is currently conducting deliberations on 17 cases of unfair trading signs detected during market surveillance, including the recent issue regarding Hyundai Motor's joint development report and disclosure of the Apple Car, involving allegations of insider trading by executives and employees.

The Financial Services Commission and Financial Supervisory Service are also investigating 112 cases of capital market unfair trading. In the case of illegal short selling by market makers who underwent special audits by the Korea Exchange, the investigation is planned to be completed this month and then reviewed by the Securities and Futures Commission.

Meanwhile, financial authorities imposed a total fine of 640 million KRW on six individuals by the 10th of this month for price manipulation-type market order disruption acts. Investors A, B, and C participated in an event where securities firms awarded prizes to customers with large trading amounts in exchange-traded funds (ETFs) and secured multiple accounts under the names of family and relatives. They conducted large-scale ETF trades between these accounts (wash trading) about 100 times, earning prizes worth 200 to 300 million KRW per person. The fines were imposed on the amount obtained after deducting trading losses from the prizes earned.

Additionally, Mr. D was caught placing thousands of fictitious orders in stock futures trading and was fined 45 million KRW. Stock futures trading involves placing buy or sell orders first and then purchasing the corresponding stocks on the maturity date. For example, if a sell contract is made at 100 KRW and a buy contract at 90 KRW, a liquidation profit of 10 KRW can be obtained.

For instance, Mr. D placed a sell order for stocks priced at 90 KRW at 100 KRW, then executed a large volume of sell contracts at 90 KRW. This made it appear as if selling pressure was strong, causing the price to rise. When the stock price increased, he executed a sell contract at 100 KRW and canceled the buy order. Immediately after, he placed a buy order again at 90 KRW, lowered the price by placing a large sell order at 90 KRW, and after the price dropped, executed a buy contract at 90 KRW and canceled the sell contract, thereby making a 10 KRW profit.

An investor who raised the bid price during the pre-market single-price trading session was also fined. The single-price trading session displays the 'expected execution price,' which reflects the aggregated buy and sell bids and quantities submitted by investors. In the case of Mr. E, he repeatedly placed large high-priced buy orders for his holdings during the single-price trading session, then canceled all buy orders, repeating fictitious orders for about 100,000 shares. He also repeatedly placed buy bids significantly lower than the market price during trading hours, which had a low likelihood of execution.

The Securities and Futures Commission judged that manipulating the expected execution price through large and repetitive fictitious orders could unfairly influence the market price and imposed a fine of 22.5 million KRW.

A Financial Services Commission official stated, "Even if the purpose is not to raise the stock price to gain trading profits, repetitive fictitious orders, wash trading, and single-share trading that disrupt market order can be subject to fines solely for the act itself." He emphasized, "Investors should be careful not to engage in repetitive fictitious orders, wash trading, or single-share trading that can disrupt market order."

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