Seoul: South Korean authorities will implement a "one-strike-out" rule targeting illegal stock trading and establish a joint inspection team to be tasked with enhanced monitoring and swift investigation of suspected cases, officials said Wednesday. They are part of comprehensive measures announced jointly by the Financial Services Commission (FSC), the Financial Supervisory Service (FSS), and the Korea Exchange (KRX) to tackle illegal stock transactions, which, in turn, is expected to boost the appeal of the local stock market to offshore investors.
According to Yonhap News Agency, the initiative includes a robust enforcement scheme whereby financial authorities will initiate payment suspension procedures when accounts used for illegal activities are identified during the investigation stage. The aim is to prevent suspects from transferring illicit profits. Individuals caught engaging in illegal activities will face fines of up to twice the amount of their unjust gains. Moreover, stock manipulators will be barred from the capital market for up to five years through restrictions on trading financial investment products and disqualification from executive roles at listed companies.
A joint task force will be established at the KRX to enhance the initial response capabilities to unfair trading. Currently, responsibilities for responding to such activities are fragmented across several institutions, causing delays in effective enforcement. The new task force aims to reduce the usual review and investigation process from up to two years to approximately six to seven months. This initiative is a temporary measure, with authorities planning to operate the task force for about a year before deciding on its future.
The implementation of these stringent measures follows President Lee Jae Myung's call for market reform after his election victory last month. The benchmark Korea Composite Stock Price Index (KOSPI) has rallied amid hopes for political stability and market-friendly policies, surpassing the 3,000-point mark for the first time in more than three years and continuing to hover around the 3,100 level. President Lee has pledged efforts to usher in a "KOSPI 5,000 era."
To further support these efforts, the government plans to revise regulations to allow market surveillance based on individuals rather than accounts. The current account-based system results in excessive monitoring and makes it difficult to detect links between accounts held by the same individual. The new approach is expected to reduce the number of subjects under analysis by approximately 39 percent, significantly improving efficiency.
The authorities also decided to strengthen listing maintenance requirements and streamline the delisting process for underperforming companies, officials said.