Insider trading occurs at seven out of 10 listed Korean firms every year, a report from a non-profit research group showed Tuesday.
According to the Korean Securities Association (KSA), it found insider trading took place in 6,021, or 67.1 percent, of 8,967 firms listed on local stock markets after examining transactions from 2003 to 2009.
Insider trading is not always illegal.
Major shareholders and executives can trade stocks of their own firms under limited conditions. They can sell stocks only six months after purchasing them, and must report these transactions to the authorities.
However, they are strictly banned from buying or selling stocks with non-public corporate information they have obtained using their positions. They are also prohibited from sharing this information with stock traders.
The report showed insider trading took place most frequently in 2007 when the country was hit by the global financial crisis.
In 2007, insider trading occurred at 71.3 percent of firms, compared to 58.2 percent in 2003, 69.1 percent in 2008 and 68.3 percent in 2009.
About 2.8 percent of shares issued by the listed firms are used for insider trading, it said.
"The percentage of shares involved in insider trading, however, could be much higher because it is hard to detect corporate insiders engaged in illegal trading," said Kim Tae-kyu, a finance professor at Hallym University.
"They use various methods to avoid inspectors ― they trade stocks using accounts of other people and sometimes hire people to trade stocks illegally. It's quite difficult to detect and prove their wrongdoing."
Kim said corporate insiders tend to increase stock transactions when shares in their firms are undervalued.
"Because they have access to more information on their firms than the public, they know about the optimum stock price level. If the stock prices fall below the optimum level, they buy shares," he said.
The report said insider trading occurs more frequently at small firms than large ones because they are monitored less.