Recently, as ultra-short-term transactions utilizing computer programs and algorithms have increased, unfair transactions that exploit this have also risen. Financial authorities and related institutions have decided to take more proactive measures regarding related sanctions.
The Financial Services Commission noted that it held the 3rd Unfair Transaction Investigation and Deliberation Council (JoShimHyup) with prosecutors, the Financial Supervisory Service, and the Korea Exchange on the 27th to discuss key issues related to such unfair transactions. JoShimHyup is a consultative body aimed at sharing major issues and discovering and promoting cooperative tasks to ensure that each institution responds organically from detecting unfair transaction suspicions to investigations.
During this JoShimHyup, measures to address ultra-short-term unfair transactions were discussed. For example, if an algorithm is used to repeatedly trade a specific stock within a short time frame to make it appear as if the stock is actively traded to other investors, it is subject to regulation.
Although the Korea Exchange has been operating a monitoring process related to ultra-short-term unfair transactions since 2013, it decided to establish new criteria for reporting suspicions as they significantly differ from general unfair transactions.
New examples of unfair transactions were also shared that had been brought to the Securities and Futures Commission under the Financial Services Commission. The individual suspected of being the largest shareholder and representative of a listed company acquired convertible bonds (CB) call options at a low price and then sold them back to a private equity fund for a low price. The individual invested in this private equity fund under a borrowed name and did not disclose any information during the call option trading process.
The private equity fund gained profits by exercising the call option or selling the convertible bonds. The suspect also received a distribution of profits, obtaining an unjust profit. In particular, the CEO of the asset management company operating this private equity fund was also investigated for conspiring in the unfair transaction.
Financial authorities have decided to take strict measures against actions where employees of listed companies and financial institutions exploit their superior positions for personal gain, harming general investors.
Also discussed at JoShimHyup were plans for cooperation to investigate unfair transaction cases by receiving information related to unlisted companies from the National Tax Service, specific operational plans following the introduction of a penalty surcharge system for unfair transaction acts, and account suspension and restrictions on trading financial investment products as a result of the amended Capital Markets Act.
Participating institutions in JoShimHyup have committed to continuously implement institutional supplementation measures to prevent unfair transactions. Yoon Soo, the standing committee member of the Securities and Futures Commission, said, "The methods of unfair transactions are evolving increasingly," and added, "The authorities should continually innovate their psychological and investigative techniques and strengthen the cooperation system."