On April 18, 2013, the Ministry of Justice, the Prosecutor’s Office, the Financial Services Commission, the Financial Supervisory Service, the National Tax Service and the Korea Exchange jointly announced comprehensive measures against stock price manipulation and other unfair trading practices, and on May 2, 2013, they launched a joint task force for the investigation of securities crimes within the Seoul Central District Prosecutor’s Office.
Unfair trading practices in the Korean capital markets have been continuously increasing, and recently, the methods used to commit such unfair trading practices have been evolving due to the increase in new types of financial products and technological development. However, as the regulatory system is currently divided among several institutions, including the Korea Exchange, the Financial Supervisory Service, the Securities and Futures Commission, the Prosecutor’s Office, and others, not only has it taken a lengthy period of time to finally impose punishment against unfair trading practices, but due to the limitations on investigative authority, issues have also been raised regarding the limitations on prompt investigations and collection of evidence. Accordingly, these comprehensive measures were established in order to resolve such issues. The major items of improvement are summarized below according to the stage of the regulation of unfair trading practices.
- Identification Stage
- Develop and operate an automated market surveillance system (to be completed by the end of September 2013) to detect suspected unfair trading practices using the internet, etc.
- Actively respond to intelligent-virtual unfair trading practices using mobile devices, etc. through creation of new tools to secure order identification information
- Considerably strengthen incentives for the reporting of unfair trading practices through future amendment of the relevant laws and regulations (the ceiling on incentives payable by the Financial Supervisory Service will be increased from KRW100 million to KRW2 billion, and that by the Korea Exchange will be increased from KRW300 to KRW2 billion)
- Investigation Stage
- Through amendment of organizational codes and adoption of a fast-track system, considerably reduce length of prosecution period by omitting the process of investigation by the Financial Supervisory Service and allowing the Securities and Futures Commission to immediately request the Prosecutor’s Office to commence an investigation.
- Conduct focused and prompt investigation of major cases through establishment of a joint task force for the investigation of securities crimes within the Seoul Central District Prosecutor’s Office, with participation by relevant authorities.
- Measures (Sanctions) Stage
- Through future amendment of the Financial Investment Services and Capital Markets Act (the “FISCMA”), mandatorily require the imposition of a separate fine when any prison sentence is imposed, and also mandatorily confiscate not less than twice the amount of unjust gains.
- Establish new provisions in the FISCMA for the imposition of a penal surcharge on new types of conduct that disrupt market order, to fill regulatory vacuums regarding such conducts which are less severe than current statutory unfair trading practices.
- Ex Poste Measures Stage
- Through future amendment of the FISCMA, enable the Financial Services Commission to request the National Tax Service to provide national taxation information and thereby promote collection of unpaid penal surcharges.
- Establish a litigation support center for investors and take steps to amend class action litigation laws for securities crimes to ease the requirements for class action suits.
Such measures above will not be implemented all at once, and measures that require amendments of the relevant laws and regulations are expected to be implemented through such amendments.
If such prompt investigation and measures against suspected violators are emphasized, there is a possibility that suspected violators would not be given a sufficient opportunity to defend their case during the process. Therefore, suspected violators need to take steps to ensure that their right to defend their case is secured by obtaining legal advice from an attorney or by appointing a legal counsel or representative at the early stage of an investigation.