By Kwaak Je-yup
A single-share purchase in America is often associated with a children’s gift, which parents offer as a framed, colorful certificate. In Korea it is increasingly an accessory to stock scams and market manipulation.
Since May last year, the Korea Exchange (KRX) has kept track of this particular investment strategy, where some broker accounts would place tens of thousands of one- to ten-share buy orders for a particular company in a matter of minutes.
The swath of orders were able to attract many individual investors on their home computers, estimated to be close to 5 million people in a country of 48 million because these fraudsters specifically targeted firms that pundits and the press had already drummed up interest in.
Small- and medium-sized KOSDAQ-listed enterprises were more prone to these tricks, since at the KOSPI, traders must buy equal to or more than ten publicly-traded shares.
As soon as those at-home traders, pejoratively nicknamed “ants,” jumped in and drove up the price, the scammers would retreat, selling all the shares they had amassed before the game began.
This new breed of the classic pump and dump, without the need for publicity to attract gullible investors, is clearly worrying the stock market operator and regulators.
As a countermeasure, the KRX has been mulling over upping the minimum number of shares for a KOSDAQ order to ten, mirroring the main exchange, as Yonhap News Agency reported Monday.
The fact that orders of one to ten shares took up 30 to 40 percent of all those placed from August to October last year should be ringing alarm bells at the watchdogs. Even more worrisome is the data showing that less than 0.1 percent of the orders were finalized as purchases.
Given that the second market is filled with smaller companies, this flexibility maintained thus far has great benefits. Without fully understanding the extent of these frauds, it would be a mistake to act first, pressured by popular discontent.
Following in the KOSPI’s footsteps with a blanket ban of these single-digit or ten-share orders would make the KOSDAQ less attractive to companies hoping to list there.
Well-aware of this, KRX spokesmen categorically denied there were concrete steps under discussion.
“We continue to keep a watch over these single-share trades but to my understanding the talks are on a theoretical level,” said one spokesman. “No one is talking about practical measures or implementations.”
Individual investors are by nature vulnerable to attacks and would be better served with more caution and information on their part than government changes to the market rules.