Unfair Trading and 'Declaration of War'... Government: "Criminals Will Not Be Allowed to Gain a Foothold in the Market" (Comprehensive)

Profitable Even Behind Bars... "A Warning Against Get-Rich-Quick Mentality"
Enhancing CFD Transparency and Introducing Leniency System to Strengthen Whistleblower Incentives

The Financial Services Commission, Financial Supervisory Service, Korea Exchange, and the prosecution have declared war on securities crime groups and announced plans to strengthen punishments for illegal actors. Although the punishment level for unfair trading practices was low enough to prompt the saying "even going to jail is still profitable," they now intend to impose heavy penalties such as fines and recovery of unjust profits for illegal activities.

On the 23rd, financial-related agencies and the Seoul Southern District Prosecutors' Office attended the "Joint Forum of Related Agencies for Eradicating Unfair Trading" held at the Korea Exchange Conference Hall in Yeouido, Seoul, reaffirming their determination to root out unfair trading and restore trust in the capital market.

Financial Services Commission Chairman Kim Joo-hyun (third from left) is taking a commemorative photo at the joint discussion forum of related organizations to eradicate unfair trading held on the 23rd at the Korea Exchange in Yeouido, Seoul. From the left, Yang Seok-jo, Chief Prosecutor of the Southern District Prosecutors' Office; Lee Bok-hyun, Governor of the Financial Supervisory Service; Chairman Kim; Son Byung-doo, Chairman of the Korea Exchange. Photo by Kim Hyun-min kimhyun81@

Imposition of fines twice the amount of unjust profits... Shift from tip-based to proactive collection of unfair trading information

At the forum, the Financial Services Commission emphasized that it will prevent unfair trading by confiscating illegal economic gains obtained through unfair trading. Kim Ju-hyun, Chairman of the Financial Services Commission, stated, "The National Assembly's Judiciary Committee is currently discussing amendments to the Capital Markets Act, including the introduction of fines, legalization of unjust profit calculation methods, and reductions for voluntary reporters. This will serve as a warning against the 'one-shot mentality' of enduring a few years in prison while living comfortably."

If the bill passes, those involved in the three major unfair trading acts?price manipulation, fraudulent trading, and insider trading?will be required to pay fines up to twice the amount of unjust profits. Currently, under the Capital Markets Act, only criminal penalties are possible for unfair acts, and administrative sanctions such as fines are not imposed. As a result, illegal profits cannot be recovered, and some offenders continue illegal activities even after criminal punishment.

The criteria for calculating unjust profits will also be specified. Until now, the standards for calculating unjust profits were insufficient, preventing appropriate punishment. Going forward, the difference between total revenue and total costs for the transaction will be estimated as the amount of unjust profits. Additionally, those with a history of unfair trading will face restrictions on capital market transactions and appointment as executives of listed companies for up to 10 years.

Financial Services Commission Chairman Kim Juhyun is answering questions from the press at the joint discussion forum of related organizations to eradicate unfair trading held at the Korea Exchange in Yeouido, Seoul on the 23rd. Photo by Kim Hyunmin kimhyun81@

In line with this, the Financial Supervisory Service will build a system to detect unfair trading early.

Currently, the Financial Supervisory Service monitors unfair trading trends mainly based on tips, but it plans to proactively collect information and conduct prompt investigations when large-scale unfair trading is accurately detected. To this end, it will establish an "Unfair Trading Information Collection Task Force (TF)" and expand the personnel for analyzing and reviewing tip reports. Furthermore, it plans to collect information on unfair trading indications online to detect unfair trading early. On this day, Lee Bok-hyun, Governor of the Financial Supervisory Service, said, "We will take a responsible stance with our careers on the line to strictly punish unfair trading," adding, "We will consistently apply a zero-tolerance principle to establish market order through strict monitoring, investigation, and punishment."

The Korea Exchange will also align with financial authorities by enhancing the transparency of the Contract for Difference (CFD) system, which was used as a tool in the recent Soci?t? G?n?rale (SG) securities-related stock manipulation incident, and by upgrading its market surveillance system. Previously, when placing CFD trading orders, the securities company, not the actual investor, was listed as the trading entity, but going forward, the actual trading entity will be indicated. The market surveillance system will be built to detect long-term price manipulation as well. Son Byung-doo, Chairman of the Korea Exchange, stated, "We will reorganize the abnormal trading detection system to detect attempts at stock price manipulation over the medium to long term early," and added, "We will also refine the methods for analyzing trading patterns."

The Seoul Southern District Prosecutors' Office announced plans to promptly establish institutional measures such as a leniency program for securities unfair trading offenders to encourage internal whistleblowing. The leniency program refers to a system that reduces or exempts punishment for those who voluntarily report illegal acts.

Need for discussion on unification of investigative agencies and introduction of one-strike-out system

Meanwhile, various suggestions for eradicating unfair trading were made during the panel discussion. Professor Lee Joon-seo of Dongguk University mentioned the need for discussions on "unification of investigative agencies," "strengthening the role of the Securities and Futures Commission (SFC)," and "introduction of a one-strike-out system."

Regarding the announcement by the four related agencies to strengthen cooperation and collaboration in investigations, Professor Lee said, "A leading agency is needed to prevent and oversee unfair trading acts before incidents occur," adding, "It is necessary to establish clear agencies that can take the lead depending on the type and subject of the incident, and cooperation systems are effective when operated post-incident."

Additionally, Professor Lee argued that the SFC's authority should be strengthened to impose harsher penalties on unfair trading acts, similar to the U.S. Securities and Exchange Commission (SEC). He also mentioned the need to discuss the introduction of the "one-strike-out system" currently being raised in the National Assembly. Professor Lee added, "Fundamentally, it is important to expel unfair trading from the capital market, and for that, a system prohibiting capital market transactions is necessary."

There was also an opinion that a reward system should be established for insiders who provide information to prevent crimes. Yeon Tae-hoon, Senior Researcher at the Korea Institute of Finance, said, "The leniency program is effective after the crime has occurred," and emphasized, "Just as the paparazzi system was effective in the past, establishing a reward system for insiders providing information to prevent illegal acts in the capital market would be effective, and the legislature should actively take the lead in this."

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