Financial authorities, including the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Korea Exchange, have decided to establish a "joint response team to eliminate stock price manipulation" at the Korea Exchange, led by the Deputy Governor of the FSS. The core focus is to quickly detect unfair transactions, such as stock price manipulation, by organizing a large-scale integrated team of 34 members and improving related systems. Additionally, the Korea Exchange will monitor individuals directly instead of just accounts to oversee stock price manipulation.

On the 9th, the FSC, FSS, and Korea Exchange held a joint briefing to announce the "practical measures to eliminate unfair trading in capital markets." This follows a request made by President Lee Jae-myung during his visit to the Korea Exchange on the 11th of last month, where he called for improvements in the system and expansion of the organization and personnel to eradicate unfair trading in capital markets. Relevant agencies have held five intensive meetings over the past month to prepare this plan.

Moreover, the authorities have decided to actively utilize administrative sanctions, such as payment suspension and penalty surcharge imposition, to ensure that any entity identified for unfair trading is expelled from the capital market after a single detection. They also plan to improve the delisting system to facilitate the early exit of poorly performing listed companies that are abused for stock price manipulation.

Graphic=Jeong Seo-hee

The key point of this plan is to enhance efficiency by making various institutions that participate in detecting and investigating unfair trading operate as a single organization.

The joint response team to be established at the Korea Exchange will be operational starting the 30th of this month. It will include a compulsory investigation team consisting of about four members from the FSC, a general investigation team of 18 personnel from the FSS, and a rapid response team made up of approximately 12 Korea Exchange officials working in one space to leverage all the investigative and inquiry powers of each agency. Authorities expect that once the joint response team is operational, the investigation period, which previously took 15 months to 2 years, will be reduced to about 6 months.

Currently, the structure involves the Exchange conducting inquiries followed by investigations from the FSC and FSS, but each agency has different authorities, resulting in delays when responding to urgent or significant matters.

Even just examining accounts suspected of involvement in stock price manipulation, the FSC and FSS can check both securities and bank accounts, but the Exchange can only check securities accounts. Furthermore, while the FSC has the authority to conduct both compulsory and voluntary investigations, the FSS lacks compulsory investigation authority.

Additionally, the authorities plan to change the Korea Exchange's market monitoring system, which has been account-based, to a person-based system. The reason the market monitoring system has been conducted by looking into accounts up to now is due to concerns over personal information leakage. The problem is that it becomes virtually impossible to identify the connection of multiple securities accounts used for stock price manipulation or to pinpoint perpetrators. The excessive number of accounts that need to be monitored has also diminished the authorities' ability to respond.

Recognizing this issue, the authorities have decided that when securities companies send encrypted resident registration numbers to the Exchange, they will encrypt them again and link them to accounts for the extraction and analysis of unfair trading based on individuals. When monitoring authorities track individual transactions, they can easily ascertain the intent of specific individuals in price manipulation or whether there is any self-dealing activity. The scope of monitoring and analysis will also be significantly reduced.

Commissioner Lee Yun-soo noted, "In the past, in the case of the Ra Deok-yeon incident, there were instances where accounts were split to evade monitoring by the Securities and Futures Commission's system, which focused on monitoring accounts involved in stock price manipulation. Improvements to the system are necessary to catch cases where multiple securities companies manage accounts and use them for stock price manipulation."

On the 9th, Yoon Soo, a standing member of the Securities and Futures Commission, is holding a joint briefing on measures to eradicate unfair trading in the capital market at the Korea Exchange. From the left, Lee Seung-woo, Deputy Director of the Financial Supervisory Service, the standing member Yoon, and Kim Hong-sik, Chairman of the Market Surveillance Committee at the Korea Exchange. /Courtesy of News1

The authorities plan to revise the enforcement ordinance of the Capital Market Act in October to provide a basis for the Exchange to process encrypted resident registration numbers and to reorganize the individual-based market monitoring system.

Moreover, a plan has been established to expel individuals from the capital market for an extended period if they are detected for engaging in unfair trading even once. This is known as the "one strike out" system. President Lee Jae-myung warned during a meeting last month that "if you engage in unfair trading in the Republic of Korea's stock market, you will be ruined," emphasizing the need for strong punishment for unfair trading activities.

The means to sanction individuals involved in unfair trading activities are already in place. A system for imposing penalty surcharges up to twice the unjust profits earned from stock price manipulation has been in effect since January of last year. Since April of this year, regulations have been implemented allowing the authorities to order the suspension of payments or restrict trading of financial investment products and the appointment or reappointment of executives at listed companies when accounts suspected of containing unjust profits from illegal activities are discovered.

In addition, financial authorities have decided to expel poorly performing listed companies that are used for stock price manipulation swiftly. They will gradually raise the thresholds for capital and sales requirements that are currently too low, and the standards have been strengthened so that companies with deficient audit opinions for two consecutive years will be delisted immediately. The current procedure for delisting KOSDAQ-listed companies will also be reduced from a three-step to a two-step process.

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