Securities manipulation

Securities manipulation (증권시세조종/證券時勢操縱) is a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, stocks and other securities.

Securities manipulation as well as insider trading are firmly regulated and punished as unfair transactions in terms of investor protection.

In an effort to eradicate unfair trading of securities, which ordinary citizens fall prey to, in line with President Park Geun-hye's election pledges, the Financial Services Commission (FSC), the Ministry of Justice and the National Tax Service (NTS) jointly launched a full investigation into around 200 stock manipulations that remained unsolved. The probe would have a significant impact on the local stock market.

Key words
manipulation, securities fraud, fictitious transaction, price stabilization

Statutory ground
Under the Capital Markets and Financial Investment Services Act (the "Capital Markets Act" 금융투자업 및 자본시장에 관한 법률), any securities manipulation is prohibited and punished as a kind of securities fraud. Articles 176 and 443 (1) of the Act.

Article 176 of the Capital Markets Act provides for anti-manipulation rules prohibiting manipulative practices in securities offerings and secondary market transactions are provided for by the Capital Markets Act.

Types of Manipulation
The Capital Markets Act categorises manipulative practices into:
 * price manipulation by fictitious transactions (위장거래에 의한 시세조종 Article 176 (1));
 * price manipulation by real transactions (현실거래에 의한 시세조종 Article 176 (2) 1);
 * price manipulation by indications (표시에 의한 시세조종 Article 176 (2) 2, 3);
 * illegal price fixing or stabilisation (불법 안정조작 시장조성 Article 176 (3)); and
 * price manipulation by arranging connected transactions (현선/現先 연계 시세조종 Article 176 (4)).

Price manipulation by fictitious transactions
In price manipulation by fictitious transactions including wash sales and matched orders, manipulators perform wash sales or issue matched orders for the purpose of misleading investors into believing that the securities are heavily traded, or otherwise to lead others to the wrong judgment. Asking brokerage firms to perform such activities is also included in this category.

Price manipulation by real transactions
In price manipulation by real transactions, manipulators conduct trading in order to mislead investors into believing that the securities are heavily traded or to manipulate the price for the purpose of inducing trades of listed securities or exchange-traded derivatives. Asking or accepting performance of such activities are also included.

Price manipulation by indication
Price manipulation by indication includes the dissemination of rumours that the price of a financial investment product is changed by market manipulation by oneself or others and the indication of false information on the matters material to the trading of a financial investment product. It is not necessary for such indication of false information to be specifically performed to the trading counterparty.

Illegal price fixing or stabilisation
Prohibition of pricing fixing or stabilisation refers to passive maintenance of the current price rather than active manipulation of the price.

Price manipulation by arranging connected transactions
The Capital Markets Act regulates two way price manipulation between exchange traded derivatives and their underlying securities and price manipulation by arranging connected transactions between securities and derivative-linked securities. Exchange-traded derivatives mean derivatives which are traded in derivatives markets (both domestic and overseas).

Among these, price fixing and stabilisation concern price manipulation relating to public offerings and, as described below, stabilisation and market making are considered lawful when subject to certain conditions.

Punishment
Article 443 (Penal Provisions) of the Capital Markets Act
 * (1) A person who falls under any of the following subparagraphs shall be punished by imprisonment for not more than ten years or by a fine not exceeding 500 million won: Provided, that a person shall be punished by a fine not exceeding an amount equivalent to three times the profit accrued or the loss avoided by a violation, if the amount equivalent to three times the profit accrued or the loss avoided by the violation exceeds 500 million won:
 * 4. A person who misled any other person in violation of Article 176 (1) to misunderstand that the trading of listed securities or exchangetraded derivatives is booming, or committed other act as set forth in any subparagraph of the same paragraph with an intention to mislead other person to make wrong judgment;
 * 5. A person who committed any act set forth in any subparagraph of Article 176 (2) with an intention to attract someone to trade listed securities or exchange-traded derivatives in violation of the same paragraph;
 * 6. A person who committed an act of engaging in a series of purchases or sales in connection with listed securities or exchange-traded derivatives or entrusting or being entrusted with such an act with an intention to fix or stabilize the market price of the listed securities or exchange-traded derivatives in violation of Article 176 (3);
 * 7. A person who committed an act set forth in any subparagraph of Article 176 (4) in connection with trading listed securities or exchange-traded derivatives in violation of the same paragraph;
 * 8 - 9. omitted