FSC "Reviewing Appropriate Regulations for High-Frequency Trading That Amplifies Volatility"

▲ Financial Services Commission Chairman Lee Eok-won, Korea Exchange Chairman Jeong Eun-bo, and other attendees pose for a commemorative photo at the opening ceremony of "Korea Premium Week 2026" held at The Grand Lotte Seoul in Jung-gu, Seoul, on the 28th. (Photo: Yonhap News)

The Financial Services Commission (FSC) has identified high-frequency trading (HFT) as a factor amplifying stock market volatility and is currently preparing regulatory measures.

Byun Je-ho, Director General for Capital Markets at the FSC, made the remarks during a keynote address at "Korea Premium Weeks 2026," South Korea's largest capital market corporate relations (IR) event held at The Grand Lotte Seoul in Jung-gu, Seoul, today (the 28th), stating that the government is "strengthening its response to potential risks in the stock market."

Director General Byun stated, "In June and July, the concentration in the semiconductor sector combined with increased leverage led to heightened market volatility, followed by a sharp correction," adding, "Although it was a painful experience, it was a time when we learned a step ahead how to respond to crisis situations that may arise in a new market environment."

He continued, "We will thoroughly manage leveraged investment products and credit margin uncollected transactions. Excessive leverage can amplify investor losses and market volatility," emphasizing that "going forward, the market should grow based on corporate performance and investors' equity capital rather than the power of leverage."

At the same time, he stated, "Regarding high-frequency trading, which expands market volatility, we are reviewing appropriate regulatory measures."

However, specific regulatory methods were not disclosed on this day.

High-frequency trading is a trading technique that uses ultra-high-speed computers and algorithms to repeatedly place and cancel large volumes of orders in microsecond units, realizing profits from minute price differences.

In addition, he said, "To prepare for situations that are difficult to respond to with conventional tools alone, we will strengthen the government's emergency market stabilization measures and actively respond to reckless investment recommendations or market-disturbing acts by finfluencers."

He also revealed plans to introduce the "bear hug" system.

A bear hug is a strategy where a potential acquirer publicly presents attractive acquisition terms to a target company, prompting the board of directors to review them and mandatorily state its official stance.

Deputy Prime Minister and Minister of Economy and Finance Lee Hyung-il also mentioned the necessity of introducing a bear hug as a measure to resolve "stock price suppression" during his nominee press conference.

Director General Byun expressed expectations that "the bear hug, combined with the duty of loyalty for shareholders, will induce the board of directors to objectively express opinions from the perspective of all shareholders rather than controlling shareholders."

In addition, he stated that the restructuring of the Kosdaq market will continue, including the delisting of penny stocks and low-market-capitalization companies.

However, he added, "There may be complaints from some companies and investors," but "we will fully listen and communicate."

Amid the participation of major global investment banks (IBs) and domestic and foreign capital market experts, a panel discussion was also held on "Suggestions for Qualitative Growth of Korea's Capital Market."

While positively evaluating the South Korean government's capital market reform directions, such as improving corporate governance and enhancing market accessibility, they emphasized securing policy consistency and sustainability.

Frank Carroll, Managing Director (MD) at Oaktree Capital, mentioned the possibility of increased domestic stock market volatility due to the influence of the U.S. stock market, stating, "It is important not to panic over market corrections and to steadily maintain the existing policy direction without wavering."

He further pointed out that the structure features a few large listed companies driving the strength of the domestic market, adding, "Now, when top-tier listed companies are supporting the market, is the right time to broaden the scope of reforms."

This is in line with the view that the government's improvement of the fundamentals of the South Korean stock market should not be limited to top-tier market capitalization listed companies.

Regarding the ban on short selling, he said, "While I understand the necessity of regulations, consistency [of the system] is more important than the short selling ban itself."

Do Jong-rok, Director of International Finance Division at the Ministry of Economy and Finance, introduced the "Korea Foreign Exchange Market Reform Plan" at the event, stating, "One of the systems the government is putting the most effort into is the offshore won settlement system."

The offshore won settlement system is a settlement system that allows foreigners to freely trade the South Korean won with other foreigners through accounts opened at their home country's banks, and it is scheduled to officially start operating in January next year.

In addition, he said, "We are also reviewing plans to provide incentives during transactions to vitalize won trading," and "we will continue to build institutional infrastructure for the internationalization of the won through future consultations with related organizations."

(Photo: Yonhap News)

※