President Lee signals ‘measures to normalize the stock market’... Follow-up steps for market stability and shareholder protection in focus

[Financial News] President Lee Jae-myung singled out negative perceptions of market transparency and fairness as a major cause of the undervaluation of domestic stocks, drawing attention to follow-up measures by the financial authorities. Attention is focused on whether the pace and enforcement of existing capital market reforms—including responses to unfair trading, greater accounting transparency, and protection for ordinary shareholders—will increase.
At a press conference on the 19th, President Lee said he would receive a comprehensive report soon and take the necessary measures to normalize the stock market. While ruling out direct government intervention in financial and securities markets, he stressed that it was fundamentally important to formulate and implement industrial and economic policies that would create a fair, transparent, and predictable market.
One existing task aligned with President Lee’s emphasis on restoring market confidence is strengthening the financial authorities’ response to unfair trading. Plans are underway to expand the staffing and investigative capacity of the Joint Stock Price Manipulation Response Team of the Financial Services Commission, the Financial Supervisory Service (FSS), and the Korea Exchange, and to grant the FSS’s special judicial police ex officio investigative authority. Safeguards to prevent abuse of these powers are also planned. The cap on rewards for reporting unfair trading would be removed, allowing payments of up to 30% of illicit gains and confiscated proceeds. Amendments to the Financial Investment Services and Capital Markets Act are also being pursued to allow the confiscation of investment principal in cases involving the use of undisclosed information and fraudulent unfair trading.
Improving accounting transparency is another task aimed at restoring market confidence. Plans are underway to double the maximum surcharge for deliberate involvement in accounting fraud and increase surcharges by 20–30% when violations continue for an extended period. Measures are also being considered to restrict those responsible for accounting fraud from serving as executives at listed companies and to expand designated audits of companies with weak corporate governance or concerns about accounting fraud.
Improving protections for ordinary shareholders is an existing task aimed at reducing distrust of corporate control and management. Reviews of duplicate listings of subsidiaries are to follow the principle of prohibition, with exceptions allowed. Plans are underway to include acquired or newly established subsidiaries in the review process when their parent companies exercise de facto control over them. The government plans to support amendments to the Financial Investment Services and Capital Markets Act that would require fair-value calculations and external evaluations in mergers and acquisitions (M&A), and to require boards to assess the fairness of offer prices from the perspective of all shareholders and disclose whether they support or oppose the deal. Plans were also put forward to publish lists of low-PBR (price-to-book ratio) companies and stock tags to encourage companies to enhance their value, and to externally review institutional investors’ compliance with the Stewardship Code and disclose which institutions comply and which do not.
Attention will focus on whether the comprehensive report proposes bringing forward the timelines for investigations and sanctions against unfair trading and for shareholder protection measures, or strengthening their enforcement on the ground. Given that President Lee said direct government intervention in financial and securities markets would be difficult and undesirable, follow-up measures may focus less on directly propping up stock prices and more on promptly implementing fair-trading, accounting, and shareholder-protection rules and making them more effective. A Financial Services Commission official said of the comprehensive report, “Nothing has been shared with the spokesperson’s office yet.”

[email protected] Lee Jeong-hwa Reporter