SEOUL, April 21 (AJP) — South Korea’s stock market is back on a roller-coaster ride, with sharp swings raising concerns that high-frequency trading (HFT) and weak oversight are amplifying volatility and feeding unfair practices.
The KOSPI rally, which had pushed past the 6,000 level, was abruptly halted by the late-February outbreak of war, sending the market into a steep downturn. The index has since rebounded and is again heading toward new highs, underscoring the intensity of recent market swings.
Such volatility has drawn in day traders and algorithm-driven players.
According to data submitted to the office of Democratic Party lawmaker Kim Seung-won by the financial watchdog earlier this month, more than 2,200 high-frequency trading accounts were registered with the Korea Exchange in February alone.
The transaction value from these accounts reached nearly 4,000 trillion won ($2.72 trillion), accounting for approximately 60 percent of total trading value that month.
High-frequency trading refers to algorithm-based transactions executed in seconds or milliseconds. While it is credited with providing market liquidity, it is also blamed for amplifying volatility.
“Electronic trading platforms can facilitate the growth of HFT firms, with a potential negative impact on the resilience of liquidity,” the International Monetary Fund noted in a recent report.
The proportion of HFT in Korea is not unusually high compared with global peers. In the United States, such trading accounts for up to 70 percent of activity on Nasdaq, while Japan’s Nikkei 225 shows a similar level to Korea at 50 to 60 percent. Major European markets also see HFT volumes reaching up to 50 percent.
The key difference lies in oversight.
In the United States, the Securities and Exchange Commission and Financial Industry Regulatory Authority directly supervise HFT activity. Japan’s Financial Services Agency requires high-speed traders to register directly, a system also adopted in major European markets.
In Korea, supervisory authority rests with the exchange itself. Because the Korea Exchange also profits from transaction fees generated by these accounts, critics argue the system is akin to “leaving the fish with the cat.”
The Financial Services Commission and Financial Supervisory Service have also faced criticism, as specific regulations governing HFT remain lacking and investigations typically begin only after incidents occur.
Meanwhile, suspected cases of unfair trading are on the rise.
According to data provided to Rep. Kim by the exchange on Sunday, major domestic brokerage firms issued more than 12,000 regulatory actions against users from January to March this year — the highest level since the fourth quarter of 2021, when excess liquidity fueled a market-wide surge.
Among these, 1,299 cases resulted in the most severe sanction — “refusal of entrustment,” or a suspension of trading. On average, about 20 accounts were frozen daily. Most cases involved “spoofing” — placing large orders with no intent to execute — or “wash sales,” in which simultaneous buying and selling creates a false impression of market activity.
“It is true that unfair trading tends to be concentrated early in the year when capital flows in,” an official from the Financial Supervisory Service said. “However, the scale and frequency of these cases are unprecedented.”
The Korean market has already exhibited significantly higher volatility than other major economies.
Following the blockade of the Strait of Hormuz, the Korean stock market plunged about 19 percent over March 3–4, compared with declines of only 3 to 4 percent in Japan’s Nikkei and Taiwan’s TAIEX during the same period.
The subsequent recovery was equally sharp. From March 4 to April 20, the KOSPI surged more than 25 percent, while the Nikkei rose about 9 percent.
Reflecting this trend, the KOSPI Volatility Index stood at 50.32 as of April 20, more than double its level a year earlier. At the height of the sell-off on March 4, the index spiked to 80.
As of Tuesday, the KOSPI closed at a record high of 6,388.47, up 2.72 percent.
While the rally has outpaced gains in the Nikkei (0.9 percent) and TAIEX (1.7 percent), the market remains vulnerable to sharper declines in future downturns.
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