On July 9, 2025, the Financial Services Commission (the “FSC”), the Financial Supervisory Service (the “FSS”) and the Korea Exchange (the “KRX”) jointly announced the “Plan to Eliminate Unfair Trading in the Capital Market.” Following the announcement, a task force to strengthen the response to unfair trade practices in the capital market (the “Task Force”) was launched and held its inaugural meeting on July 16, 2025. Subsequently, on July 30, 2025, a joint response unit to combat stock price manipulation (the “Joint Response Unit”) was established.
These initiatives reflect the new administration’s commitment to strengthening initial responses to unfair trade practices and enforcing stricter penalties – a direction that has gained additional momentum following the recent amendment of the Financial Investment Services and Capital Markets Act (the “FSCMA”), which introduced new sanctions for unfair trading and short selling. The key details of the “Plan to Eliminate Unfair Trading in the Capital Market” and the Task Force, as outlined by the financial supervisory authorities, are as follows:
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Plan to Eliminate Unfair Trading in Capital Market
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(1)
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Establishment of Joint Response Unit to Combat Stock Price Manipulation
The Joint Response Unit was established to (i) prevent delays caused by lack of centralized authority over the review and investigation of unfair trading practices, and (ii) enhance the efficiency of such processes. Comprised of representatives from the FSC, FSS and KRX, the Joint Response Unit is dedicated to systematically investigating and promptly addressing urgent and significant incidents from the outset. After one year of operation, a review will be conducted to determine whether to convert the Joint Response Unit into a permanent organization.
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Enhancement of KRX’s Market Surveillance System
Currently, the KRX conducts market surveillance on an account-by-account basis without accessing personal information. However, this method faces challenges due to the sheer number of accounts and difficulties in identifying relationships between different parties. To address these issues, the Enforcement Decree of the FSCMA will be amended to allow for surveillance on an “individual basis” by linking pseudonymized information to each account. Additionally, the market surveillance system will be further enhanced by utilizing AI technology, enabling a faster and more precise response to increasingly sophisticated unfair trading practices.
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Introduction of “One Strike Out” Mechanism for Unfair Trade Practices
To effectively recoup illegal profits and prohibit the participation of those who engage in unfair trading in the capital market, the financial supervisory authorities plan to swiftly enforce and actively utilize the sanctions introduced under the amended FSCMA. These sanctions include (i) restricting trading in financial investment products for individuals and entities involved in unfair trading practices and illegal short selling, (ii) limiting the appointment and tenure of executives at listed companies, and (iii) suspending payments from suspicious accounts. Furthermore, the maximum administrative penalty will be imposed for significant illegal short selling.
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(4)
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Expedited Delisting of Insolvent Listed Companies
To address the risk of insolvent listed companies being exploited for unfair trading activities, such as stock price manipulation, amendments to the KOSPI Market Listing Regulations, the KOSDAQ Market Listing Regulations and the respective subordinate rules took effect on July 10, 2025. These amendments (i) strengthen the listing maintenance requirements related to market capitalization, sales and audit opinions, and (ii) streamline the delisting review process into a two-tiered system.
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Task Force
The Task Force is composed of working-level representatives, including the Head and an anti-corruption researcher from the Anti-Corruption Division 1 of the Supreme Prosecutors’ Office, the Head and Deputy Chief Prosecutor from the Joint Financial and Securities Crime Investigation Department of the Seoul Southern District Prosecutors’ Office, the Director and Deputy Director of the Capital Market Investigation Coordination Division of the FSC, the Director of the Investigation Division 1 of the FSS and the Head of the Investigation Coordination Team of the FSS, and the Head of the Audit Division 1 of the KRX.
The Task Force held its inaugural meeting at the Supreme Prosecutors’ Office on July 16, 2025, and will continue to convene on a monthly basis. The Supreme Prosecutors’ Office stated that the Task Force aims to develop concrete measures to ensure swift and fair investigations into stock manipulation and foster coordinated responses to unfair trading practices.
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The financial supervisory authorities intend to detect unfair trading and illegal short selling at an early stage and enforce strict, zero-tolerance measures. This will be achieved by implementing the action plans, operating the new task force and applying new sanctions available under the amended FSCMA, as described above. In light of such developments, it would be essential to strengthen internal monitoring and preventive measures against unfair trading and illegal short selling to ensure compliance with the relevant regulations.
[Korean Version]
