A retail investor who gained about 30 million won in unfair profits was recently caught on suspicion of price manipulation and referred to prosecutors. Unfair trading such as price manipulation is often perceived as involving multiple participants or unjust gains of tens of billions of won or more. But it has been confirmed that cases of relatively small scale can still be detected.
The Securities and Futures Commission under the Financial Services Commission on the 8th notified investigative authorities of retail investor A on suspicion of violating the prohibition on price manipulation under the Financial Investment Services and Capital Markets Act. The investigation found that A, aiming for trading gains through a rise in share price, picked low-volume stocks and submitted price-manipulative orders for more than a year.
This SFC action put the emphasis on the illegality of the act itself rather than the size of the unjust gains. A used classic price-manipulation tactics such as buying at the offer and submitting large volumes of quotes. From Mar. 2017 to Apr. 2018, for about a year, A placed 5,042 orders (1,951,898 shares) intended to manipulate prices almost every day.
An FSS official said, "While the 30 million won in unjust gains itself does not have a large ripple effect, the problem is that A repeated more than 5,000 orders in low-volume stocks, increasing price volatility." The official added, "In this process, trading volume can rise and lure retail investors as if there were 'good news.'"
A conducted repeated transactions across multiple accounts using a single computer in a personal office. When the securities firm system in use classified the orders as unsound and rejected new buys, A moved among several securities firms, opening new accounts and transferring funds to continue trading. Although A mobilized 13 accounts under the names of five parties, including A, family members, and a company owned by A, the fact that the login IP addresses were identical eventually revealed that A was the real owner of the accounts.
A's price-manipulation activity was detected as unfair trading during the Korea Exchange (KRX)'s abnormal transaction screening and was subsequently investigated by the Financial Supervisory Service.
Unfair trading is generally perceived as a more serious social incident when the size of unjust gains is large, and authorities often file a complaint with prosecutors. In A's case, however, a high quote participation rate was flagged, and the matter was referred to investigative authorities without a formal complaint.
Both filing a complaint with prosecutors and notifying them by the SFC are measures to refer a case to investigative authorities, but a complaint carries a higher likelihood of criminal punishment. By contrast, a notification applies to matters that do not rise to gross negligence, and it may end with the notification or not lead to punishment depending on the outcome of the investigation.
A's exact quote participation rate is not public, but orders intended to manipulate prices reportedly accounted for a substantial share of all orders in the stock. Generally, even just over 10% of total volume is considered to have influenced the market, and a 30%–50% level is regarded as very high.
Regardless of whether the stock price rises or falls, if a transaction pattern intended to manipulate prices is identified, the FSS can detect it. Price manipulation entails legal liability when intentional market intervention is confirmed, regardless of price movement or revenue.
The FSS said it has consistently notified investigative authorities not only in cases involving unjust gains of hundreds of millions to hundreds of billions of won, but also in relatively small cases, and that this action is not unusual.
As the government has made eradicating stock price rigging a key task and is ramping up its response, financial authorities' surveillance nets are getting tighter. It is worth noting that intentional price intervention can be detected at any time, regardless of scale.