Financial Regulator Warns of Stock Market Volatility: "High-Frequency Trading Under Regulatory Review"

Korea Premium Weeks Opens
Enhanced Disclosure, Stronger Dividends, and PBR Improvements
Possible Regulation of Volatility-Driving HFT
Experts Offer Additional Suggestions

Financial authorities are considering regulatory measures for high-frequency trading (HFT), identifying it as one of the factors contributing to heightened stock market volatility.

Jaehyo Byun, Director General of the Capital Markets Bureau at the Financial Services Commission, speaks at 'Korea Premium Weeks 2026,' the largest domestic capital market investor relations (IR) event held at The Grand Lotte Seoul on the 28th. Photo by Seungwook Park

Jaehyo Byun, Director General of the Capital Markets Bureau at the Financial Services Commission, announced plans to strengthen management of leverage investments and high-frequency trading, which amplify market volatility, at 'Korea Premium Weeks 2026,' the largest domestic capital market investor relations (IR) event held at The Grand Lotte Seoul on September 28.

Byun stated, "The time has come for Korea to be recognized for its premium, not its discount, but the Korean stock market now faces new challenges. There are significant risk factors such as rising international oil prices, global interest rate hikes, and uncertainties surrounding the AI semiconductor industry. In June and July, market volatility increased due to concentration in semiconductors and greater use of leverage, followed by a sharp adjustment."

Consequently, Byun emphasized the need for market reform to address these risk factors. He said, "We will enhance disclosure regarding governance changes to ensure the intent of the revised Commercial Act takes root in corporate management, and we will create an environment where companies actively return profits to shareholders by introducing flexible dividend systems, such as interim and quarterly dividends, as well as ad hoc dividends."

He added, "We plan to introduce inheritance and gift tax premiums for companies with chronically low price-to-book ratios (PBR), implement disclosure requirements for such companies, and introduce the bear hug system. In particular, the bear hug system—which requires the board of directors to present an opinion on tender offers—will work in tandem with directors' fiduciary duty to shareholders, encouraging objective opinions that represent all shareholders, not just controlling ones."

He also highlighted, "We have confirmed that excessive leverage can amplify market volatility," stressing, "The market needs to grow based on corporate performance and investors' own capital, not the power of leverage. Therefore, we are considering appropriate regulatory measures for high-frequency trading (HFT), as it increases volatility."

A panel discussion is underway at Korea Premium Weeks 2026, the largest capital market investor relations (IR) event in Korea, held on the 28th at The Grand Lotte Seoul. Photo by Seungwook Park

Byun also introduced the policy direction for restructuring the KOSDAQ market. "We will facilitate the growth of promising companies and exclude penny stocks and those with low market capitalization, creating a segment focused on strong enterprises to attract institutional capital," he said. "We plan to implement various system improvements to draw more funds into KOSDAQ."

The event also addressed tasks for improving the Korean stock market. Junhyuk Jung, professor at Seoul National University School of Law, remarked, "Now that many new regulations are in place, it is important to establish best practices through soft law. After the introduction of the directors' fiduciary duty to shareholders, it has become routine to set up special committees or hold shareholder meetings for reorganizations, even when not legally required. Similarly, voluntary value-up reports and the like should become established practice, even without mandates."

Dongseob Lee, Head of Stewardship Responsibility at the National Pension Service, suggested, "Conflicts of interest between major and general shareholders often arise in M&As or inter-affiliate transactions. A special committee composed of independent directors should review and approve these matters in advance. When the board of directors votes, there must be procedures that allow evaluation of whether the issue significantly affects general shareholder value."

Foreign investors participating in the event also pointed out the need for policy consistency. Frank Carroll, Managing Director at Oaktree Capital, said, "Consistency is critical. The market has performed very well so far, and even when corrections occur, we should stay the course rather than be fearful. What we want is for the rules to remain constant."

Some foreign investors also emphasized the professionalism of boards of directors. Winnie Kwan, Chief Investment Officer (PIO) at Capital Group, stated, "A tax reform reducing the current maximum dividend tax rate from 45 percent to around 25 percent would lead to better corporate value evaluation. In addition, semiconductor companies should further increase the proportion of free cash flow (FCF) returned to shareholders above the current 50 percent and raise the minimum mandatory dividend amount—currently only nominal—so as to maximize shareholder returns."

This content was produced with the assistance of AI translation services.