Korea Exchange Establishes New Criteria for Long-Term Investment Warning Designation... Enhancing Market Surveillance

The Korea Exchange is enhancing its market surveillance system by introducing new criteria for designating ultra-long-term investment warnings to respond to unfair trading in the capital market, and is also promoting special audits of Contracts for Difference (CFD) accounts.

Korea Exchange, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

The Exchange's Market Surveillance Committee (MSC) announced on the 25th that it has prepared a comprehensive improvement plan for the overall market surveillance system to detect new types of unfair trading early and improve timely response capabilities, and will promptly implement it.

The Exchange stated, "Following the large-scale stock price manipulation incident that occurred in April this year, the MSC and financial and investigative authorities have thoroughly investigated the stock price manipulation allegations and prepared various improvement measures to prevent recurrence of similar unfair trading. As part of this, the MSC plans to strengthen market surveillance and review functions by mobilizing all available resources as the initial investigation agency for unfair trading in the capital market, and to overhaul the organization and operational system as a whole."

To advance the market surveillance system, mid- to long-term unfair trading detection criteria have been established. Currently, the abnormal transaction detection criteria are designed for a maximum of 100 days, as most stock price manipulation cases occur within a short period, which limits the response to ultra-long-term unfair trading. Therefore, in addition to short-term detection criteria, new abnormal transaction detection criteria for 6 months (mid-term) and annually (long-term) will be introduced. These include ▲expanding the target period for stock price increase range ▲changing the calculation criteria for stock price increase range ▲adjusting the involvement rate figures for linked account groups ▲reflecting corporate market value indicators (PER·PBR), among others.

Additionally, methods for determining linked accounts will be diversified, such as through trading pattern similarity analysis, and related information will be databased (DB) for use in analyzing suspicious accounts.

The market warning system will also be improved. Currently, the system operates for stocks with rapid price surges over a short period to prevent impulsive trading by investors, but there have been criticisms that the system is insufficient in raising investment caution for stocks with long-term price increases. Accordingly, new ultra-long-term investment warning designation criteria will be introduced to enable investment alerts when necessary for long-term rising stocks that have increased by a certain level (200%) or more compared to the price one year ago, reflecting trading patterns and other signs of unsoundness.

Early sharing and cooperation regarding suspicious stocks involved in unfair trading will also be activated. For urgent and significant cases among the stocks under review, an early cooperation system between the MSC and financial authorities will be established to enable rapid response and shorten processing times. A feedback system between financial authorities' investigations and MSC's review work will be set up to improve review techniques and increase the accuracy of suspicion detection.

Management of CFD accounts will be strengthened. Until now, CFD accounts have not exposed actual investor information, limiting the ability to confirm whether the same price manipulation forces are involved, making it difficult to detect unfair trading. Therefore, measures to secure actual investor trading information for CFD accounts and utilize it to detect unfair trading are under consideration.

Furthermore, special audits related to CFD accounts will be promoted to thoroughly inspect the management status of member firms' CFD accounts.

To enhance cyber surveillance functions, the Exchange plans to diversify cyber information collection media and database the information to enable systematic analysis by upgrading outdated infrastructure.

To establish timely market surveillance standards, a new expert consultative body will be created to gather market information such as unfair trading trends and external opinions. At the same time, the MSC will reorganize its functions and organization by task to ensure organic operation between the surveillance and review functions, which are currently separated in post-detection work, and will supplement appropriate personnel. Accordingly, the entire process from abnormal transaction detection to suspicion notification will be unified under a single department, and a new department dedicated to preventive measures will be established to strengthen preemptive functions.

An Exchange official said, "These comprehensive improvement measures are scheduled to be implemented sequentially from the fourth quarter of this year to the first half of next year, once regulation revisions and system developments are completed."

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