Establishing a 'One Team' System for Stock Manipulation Investigation... Permanent Control Tower Centered on the Korea Securities and Exchange Commission

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The main points of the 'Capital Market Unfair Trading Response System Improvement Plan,' jointly announced by the Financial Services Commission and the Seoul Southern District Prosecutors' Office along with related agencies, are summarized as follows: △Permanent establishment of a control tower for stock price manipulation investigations △Improvement of market surveillance procedures △Expansion of investigation and prosecution organizations for stock price manipulation △Legal amendments (introduction of asset freezing system)(Related article). The core is to abandon the previous method where the Korea Exchange → Financial Services Commission and Financial Supervisory Service → Prosecutors' Office operated independently at each stage, and instead establish a permanent collaborative system centered on the 'Emergency Investigation and Deliberation Agency Council' (Josimhyeop), sharing information among agencies.

◆The Securities and Futures Commission as the control tower for stock price manipulation cases... Establishing a collaborative system= The biggest change is 'collaboration.' The Emergency Measures Organization, Josimhyeop, which was a temporary body, will be made the control tower for stock price manipulation cases. The plan is to build a collaborative system centered on the Securities and Futures Commission, involving the Exchange, financial authorities, and prosecutors as needed.

Josimhyeop was established in April following the La Deok-yeon Gate incident to discuss improvements to the unfair trading response system. From now on, four agencies?the Financial Services Commission, Financial Supervisory Service, Korea Exchange, and prosecutors as needed?will meet once a month. The working-level consultative body will be convened as needed, centered on the Financial Services Commission's Capital Market Investigation Division.

Until now, when the Korea Exchange's Market Surveillance Committee (Sikamwi) extracted abnormal data, it passed the information to the financial authorities, who conducted their own investigations. Based on the investigation results, the Financial Services Commission's Securities and Futures Commission imposed sanctions or referred cases to the prosecutors. This segmented role-based handling of stock price manipulation cases was criticized for inefficiency.

Kim Ju-hyun, Chairman of the Financial Services Commission, said, "The core of this measure is to drastically reform the unfair trading response collaboration system," adding, "In urgent and serious cases, we will immediately share situations and information with investigative authorities and swiftly transition to investigations when necessary to ensure strict punishment."

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Under the collaborative system, information sharing will also be strengthened. The scope of information sharing will vary depending on the case. For information circulating in the market or tips, the Exchange and financial authorities will actively share information. Until now, the Exchange and the Financial Supervisory Service operated separate tip-off systems with similar functions.

For general cases, investigation status will always be shared. Management of stock price manipulation cases goes through market surveillance, deliberation, investigation, and prosecution stages. Previously, the Exchange notified the financial authorities after completing deliberation. The financial authorities rarely shared information with the Exchange, but now they will share ongoing investigation details with the Exchange.

When a serious case occurs, the Exchange will immediately share transaction data and other case information with the financial authorities. Furthermore, key information will be systematically managed. The plan is to accumulate information such as the Exchange's deliberation analysis materials, financial authorities' investigation reports, Capital Market Investigation Team data, Securities and Futures Commission agendas, and court rulings to build an information map related to future unfair trading offenders.

An official from the Exchange said, "Until now, to maintain confidentiality, information flow in stock price manipulation investigations only went upward from lower agencies (Exchange) to higher agencies (financial authorities), but now information can be shared among agencies depending on the matter," adding, "Strengthening information sharing will enable swift and efficient monitoring of abnormal movements or persons of interest and case investigations."

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◆Reward limit raised to 3 billion KRW... Strengthening investigation personnel capabilities= Market surveillance capabilities will be enhanced and investigation procedures improved. First, to activate reporting of unfair trading, the reward limit will be raised from the current 2 billion KRW to 3 billion KRW. Although the reward is funded by the Financial Supervisory Service's budget, government resources will be used starting next year.

Establishing a surveillance system for K-OTC (over-the-counter market) is also notable. The Korea Financial Investment Association plans to set up a system by October to notify the Financial Services Commission if unfair trading suspicions are detected. Along with this, a market alert system for stocks with abnormal price surges will be newly created.

Regarding investigation procedures, personnel expansion and performance evaluation reform will be conducted simultaneously. In May, the Financial Supervisory Service reorganized three investigation departments into Investigation Divisions 1 to 3 and increased investigation personnel from 70 to 95. The Exchange also plans to reorganize the Market Surveillance Department, Deliberation Department, and Special Deliberation Department under the Market Surveillance Committee into Surveillance and Deliberation Divisions 1 to 3 this month. Additionally, a dedicated research team will be established to improve abnormal transaction extraction criteria.

Along with this, the Financial Supervisory Service plans to add investigation performance to evaluation indicators and award extra points for excellent investigation cases. Notably, the Financial Supervisory Service will also introduce a monthly investigation activity allowance of about 150,000 KRW. This reflects the Financial Supervisory Service's determination to eradicate unfair trading. The Exchange will also reflect hit rates of suspicions in performance evaluations.

The Financial Services Commission plans to discuss reinforcing investigation personnel with related ministries. Industry insiders say forensic personnel should be expanded first. Forensics is essential for rapid evidence collection in the early stages of cases. Additionally, new teams for imposing fines and resolving case backlogs need to be formed.

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