Financial Authorities Consider Restricting Capital Market Participation of Unfair Stock Market Traders

Launch of 12 Planned Investigations into Signs of Fraudulent Transactions Including No-Capital M&A

[Asia Economy Reporter Ji Yeon-jin] Financial authorities are considering introducing sanctions that restrict participation in the capital market, such as banning trading of financial investment products when unfair trading in the stock market is detected.

The Financial Services Commission announced on the 22nd that such discussions took place during the 4th meeting of the "Securities Market Illegal and Unsound Activities Intensive Response Team," which included the Financial Supervisory Service, Korea Exchange, and Korea Financial Investment Association.

Compared to advanced countries, South Korea is pointed out to have insufficient sanctions and measures against unfair trading such as market manipulation. In advanced countries, trading of financial investment products is banned for violators of securities laws, or preemptive suspension orders can be issued against suspected investors before sanctions by financial authorities are finalized.

Lee Myung-soon, standing commissioner of the Securities and Futures Commission, said at the meeting, "In a situation where the base of the capital market is greatly expanding, establishing a strict response system against unfair trading is essential for the advancement of the capital market," adding, "In addition to the penalty system, we plan to actively consider introducing various sanctions such as restricting participation in the capital market for unfair traders."

He also mentioned that they will actively support discussions on the amendment to the "Capital Markets and Financial Investment Business Act (Capital Markets Act)" currently pending in the National Assembly, which includes significantly strengthening penalties.

The meeting also reviewed the progress of the "Comprehensive Measures to Eradicate Illegal and Unsound Activities in the Securities Market" announced last October. From last October to June this year, during the intensive reporting period for unfair trading, about 1,400 reports were received by the Financial Supervisory Service and about 700 by the Korea Exchange. Among these, 11 cases are under investigation by the Financial Supervisory Service, and the Korea Exchange is utilizing 44 cases for market surveillance. During this period, 189 new thematic stocks were added after focused inspections, and 511 stocks are being monitored.

Additionally, market alerts totaling 2,195 and preventive measures totaling 2,425 were processed for stocks and accounts suspected of unfair trading detected during this period, and penalties amounting to 950 million KRW were imposed on nine individuals who disrupted market order.

Regarding no-capital mergers and acquisitions (M&A) and convertible bonds, 25 companies showing major characteristics in disclosures were inspected, and planned investigations were launched for 12 companies where signs of fraudulent trading were found. Among 31 companies suspected of accounting fraud, audits have been completed for 21, and audits are ongoing for nine companies.

Commissioner Lee said, "There have been improvements in the soundness of the capital market, such as a clear decrease in the number of market alert activations and a reduction in the number of listed companies suspected of unfair trading to pre-COVID-19 levels," but added, "As investor deposits and credit loans continue to increase, and with concerns over market volatility due to the resurgence of COVID-19 caused by variant viruses and changes in economic response policies of various countries, please continue all efforts to ensure that the unfair trading response system takes root in the market."

He also mentioned the need to evaluate the performance and prepare improvement measures for the operation of the Financial Supervisory Service’s special investigation unit, stating, “Since a task force with related agencies is currently formed and closely consulting, a reasonable plan is expected to be derived soon.”

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