South Korea’s KOSDAQ Market Sees Fraud Rates Eight Times Higher than KOSPI

New data from financial regulators reveals a stark disparity in market misconduct between South Korea’s two main stock exchanges. Insider trading remains the dominant form of financial fraud, accounting for nearly 60% of all reported cases, with illicit activities concentrated heavily in the tech-heavy KOSDAQ market at rates eight times higher than the premier KOSPI board.

Background and Context

The findings come from the "2025 Unfair Trading Review Results" released by the Korea Exchange’s Market Oversight Committee, which identified 98 suspected unfair trading cases reported to the Financial Services Commission last year. The report highlights a surge in tender offers—rising from five in 2022 to 26 in 2024—as a primary driver for insider trading. Bad actors are increasingly exploiting non-public information regarding mergers, acquisitions, and delisting initiatives, often using borrowed-name accounts to conceal their identities.

Key Figures and Entities

The data underscores a systemic vulnerability in the KOSDAQ market, which recorded 66 cases of unfair trading, compared to just 28 on the KOSPI. Fraudulent trading, defined as the use of false information to deceive investors, was particularly rampant on the junior exchange, with 16 cases detected compared to only two on the main board. The Korea Exchange attributes this concentration to the demographic of KOSDAQ-listed firms, which are often smaller companies with weaker governance structures, making them more susceptible to manipulation and rumor-based schemes.

Legal and Financial Mechanisms

Investigators have uncovered increasingly sophisticated schemes designed to exploit regulatory gaps. One prevalent method involves acquiring management control through capital-free M&A, followed by the announcement of aggressive expansion plans into trending sectors such as artificial intelligence or secondary batteries. Perpetrators inflate stock prices using these exaggerated claims or unverifiable press releases regarding overseas expansion, only to sell their stakes at the peak. Additionally, the report noted four specific instances of market manipulation tied to political themes, where traders exploited election-related volatility to drive unnatural price movements.

International Implications and Policy Response

The financial scale of these crimes is expanding. The average illicit gain per case rose 33% year-on-year to 2.4 billion won ($1.7 million), while the average number of suspects per case increased to 16. In response to these escalating risks, the exchange has pledged to work closely with authorities to target socially significant cases. Regulators have also warned investors to be wary of stocks that surge on hype rather than fundamentals, particularly as the market prepares for the introduction of extended trading hours. New surveillance measures are being developed to detect manipulation that may exploit pre-market and after-market sessions scheduled to launch later this year.

Sources

This report draws on the "2025 Unfair Trading Review Results" published by the Korea Exchange and data submitted to the Financial Services Commission.