Politically-sensitive stocks to get scrutiny

The nation’s financial regulatory agencies will take pre-emptive steps ahead of next year’s presidential election to ensure political rumors will not lead to volatility in stocks associated with possible presidential contenders.

In previous elections, stocks of companies with connections to candidates have fluctuated more than the average market movement.

A task force comprising representatives from the Financial Services Commission, Financial Supervisory Service, Korea Exchange and Seoul Southern District Prosecutors’ Office said Tuesday that it would apply price stabilization mechanisms, including a periodic call auction, to prevent political rumors from affecting the market.

During a meeting held at the Korea Exchange in Yeouido, western Seoul, representatives from the four agencies agreed on the need for joint efforts in swiftly acting against irregularities in politically-connected stocks.

“There is a limit to counteracting these stocks’ sharp volatility after such irregularities happen,” said Lee Hae-sun, chairman of the Korea Exchange’s Market Oversight Commission. “Pre-emptive action under such systematic joint efforts among related institutions is most important.”

Lee Byung-rae of the Stock and Futures Commission under the Financial Services Commission agreed on the need for pre-emptive action amid growing uncertainties in the Korean market next year due to risk factors at home and abroad.

The task force comprising investigators from the four regulatory agencies will not only monitor the movement of stocks suspected of having connections to politicians but will also force companies to explain political rumors circulating about the company. If share prices surge without any specific reasons, such as winning contracts or improvements in economic performance, the investigative team will track down the cause.

Those found circulating rumors will face penalties such as coughing up 1.5 times the profit they have made or face a fine of 500 million won ($427,000) or less.

If market volatility increases due to disruptions caused by political stocks, the government said it would even consider introducing a periodic call auction. In such a case, the regulators will fix the selling and buying price of stocks that have experienced either a sharp increase or sharp drop without specific reasons and allow them only to be sold during a certain period.

On Monday, one stock connected to a possible presidential contender, Seongnam Mayor Lee Jae-myung, experienced a change in share price. The price of Hankuk Package, a food packaging company, rose from 2,220 won to 3,180 won.

In a follow-up regulatory filing on Tuesday, the company said there was no major information regarding the price increase.

The Korea Exchange demanded the filing after Lee’s popularity surged following his outspoken remarks against President Park Geun-hye and her corruption scandal.

As the firebrand liberal mayor has been strongly advocating free school meals and free uniforms for middle school students, Hankuk Package’s revenue has been speculated to improve in the future.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]