NCSOFT's stock price spike comes under KRX's scrutiny

NCSOFT CEO Kim Taek-jin, left, and Korea Exchange (KRX) Chairman and CEO Sohn Byung-doo

By Anna J. Park

Korea Exchange (KRX) is currently investigating NCSOFT's stock price spike last Thursday to look for any signs of attempts to artificially inflate the stock price.

On Nov. 11, the stock price of the country's signature online game developer soared to 786,000 won, a 29.92 percent increase, close to the highest possible jump under the exchange's daily 30 percent ceiling rule. A stock's price cannot increase or decrease by more than 30 percent in a single trading day.

What shocked the market, just beyond the price hike, was that it turned out a stunning 25 percent of the day's stock price hikes came from a single account of a retail investor. It's very rare for a blue-chip stock to end near the daily limit in a single trading session.

The case is now under investigation by the KRX, the country's bourse operator.

“When a stock shows atypical movements, the first thing we check is whether there has been any insider trading or insider information leakage. If it's not the case, then we see whether there have been attempts of any market manipulation,” the head of KRX's market monitoring committee said.

“We also check whether there's any related option trading, as an investor's excessive accumulation of stocks could affect the results of option products.”

KRX said its monitoring system catches any irregular stock trading automatically, and the probe into this case began immediately on the same day as the price spike. The KRX official said it could take some time, from a week to a month, to delve into the case to confirm whether there has been any insider trading, or attempts of market speculation.

The incident took place last Thursday when the retail investor's account bought 703,325 stocks, while selling 210,933 stocks during the trading session, resulting in a net purchase of 492,392 stocks. Roughly calculated, the investor spent more than 300 billion won ($254 million) on purchasing the stocks on the day.

The trading size is atypically large for a retail investor, and also suspicious in nature, given that last Thursday was the game company's earnings release day. While its third-quarter operating profit was disappointing, showing a fall of 56 percent year-on-year, NCSOFT unveiled its new plan of applying non-fungible token (NFT) and blockchain technology for its service for next year.

Stock market insiders contacted by The Korea Times said it's a peculiar case in that the core motive remains a mystery. Some market watchers speculate the trading is based on insider information, and some view it as an attempt at market manipulation related to the investor's option trading on the stock.

The fact that last Thursday was an expiration date of options increased suspicions that the investor in question aimed to boost the stock price to take advantage of a “long position” on the option trading. Or it could be an innocuous betting on the stock that only coincided with the firm's surprising NFT announcement on the day, analysts said, Monday.

“This is obviously a peculiar case, because it is evident among market participants that this level of huge stock trading would entail the financial authorities' further investigation into the case. While knowing that it would raise the authorities' attention, why would any investor decide to trade in one, single retail account? It is the core of the case's mystery, while it is still not entirely impossible that an innocuous retail investor could trade this way,” a market insider said on condition of anonymity, Monday.

If the KRX's market monitoring committee finds any suspicious activity, then the case will be reviewed again by the KRX, before going to the Financial Supervisory Service (FSS) which decides whether to send the case to the prosecution. Engaging in market manipulation or insider trading could result in criminal charges.