Foreign investors in politics-driven stocks may face probe

KRX looks into possible involvement of local cartels in election-themed stock rigging


The Korea Exchange said on Wednesday that it will look into a possible stock price rigging scheme, regarding recent mass purchases of stocks linked to key politicians by foreign investors.

Foreigners made net purchases worth 37 billion won in eight trading days between Sept. 19 and 28 of so-called “politically-themed” stocks linked to presidential election frontrunners such as Ahn Cheol-soo and Park Geun-hye. Observers in the financial sector said some of the buyers could be members of local stock manipulation cartels.

“We will analyze the ‘themed stock’ transactions made through foreign brokerage counters,” an official at the Korea Exchange said.

“If we find grounds to suspect unfair trading, we will inform the Financial Supervisory Service of our findings.”

The nation’s top financial regulator said it will scrutinize all related information to track down foreign investors and others involved in the alleged stock price manipulation.

“Regarding stock price rigging, we go through the accounts of both Koreans and non-Koreans,” an FSS official said.

“If suspicions of market manipulation rise as we go over the stock orders, we will start looking into it as a possible case of an unfair transaction.”

Many in the financial industry suspect that some of the “foreign” investors that bought 37 billion won worth of election-themed stocks in eight days may be ethnic Koreans with foreign passports operating as members of local stock manipulation cartels.

The Korea Exchange plans to examine the transactions and accounts held by the “foreign” investors, with the possibility that they may be local investors with overseas accounts.

Stock trading through the overseas arms of Korean asset management firms or brokerages is officially tallied as “foreign” trading even if the investor is Korean.

Some stock manipulation cartels are suspected of using the foreign arms of Korean brokerages to escape the vigilance of Korean financial authorities.

If such cartels use accounts under foreigners’ names, general investors are more easily lured into taking part and sustaining damages, the Korea Exchange said.

By Kim So-hyun (sophie@heraldcorp.com)