Summary
This chapter asks where the boundary lies between the series of purchases and sales aimed at fixing or stabilizing the market price, prohibited by Article 176, paragraph (3) of the Financial Investment Services and Capital Markets Act, and the stabilization operations and market making exceptionally permitted by the proviso. It organizes the standard by which the judgment construed the meaning of price fixing as artificial manipulation and recognized a fixing purpose by aggregating circumstantial facts, and the structure leading on to linked price manipulation.
7.1The Prohibition and the Exceptional Proviso of Article 176, Paragraph (3)
The main text of Article 176, paragraph (3) of the Financial Investment Services and Capital Markets Act prohibits any person from engaging in, with respect to listed securities or exchange-traded derivatives, a series of purchases and sales, or the entrustment or acceptance thereof, for the purpose of fixing or stabilizing the market price of such securities or exchange-traded derivatives. Whereas the disguised trading of paragraph (1) and the price-moving trading of paragraph (2) focus on misapprehension of the state of trading or on inducing trades, paragraph (3) makes the purpose of fixing and stabilization — preventing a rise or fall in the market price and binding it at a certain level — an independent requirement of prohibition. Conduct that holds the price in place so that it cannot move likewise distorts price formation under natural supply and demand.
The proviso to the same paragraph excludes from the prohibition cases falling under stabilization operations or market making conducted in accordance with the Presidential Decree for the purpose of facilitating a public offering or sale, and the entrustment or acceptance thereof. When a large-scale issue of new shares or a sale of existing shares takes place, a temporary increase in volume can cause the stock price to plunge, paralyzing the fund-raising function; hence the intent is to permit only limited downside support orders, within the subject entities, periods, price ceilings, and disclosure procedure prescribed by statute and regulation. The Enforcement Decree of the Financial Investment Services and Capital Markets Act specifically provides the entities that may conduct stabilization operations and market making, the securities subject thereto, the operation period, the ceiling of order prices, and the obligations of prior and subsequent reporting and disclosure.
The reasoning of a judgment applying the former Securities and Exchange Act likewise states that trading for the purpose of fixing or stabilizing the market price is exceptionally permitted only under the strict conditions prescribed by law (Supreme Court Decision 98Do3051 decided December 8, 1998). Those conditions include not only limitations as to the permitted period, price, and entity, but also the submission of statements and reports and the disclosure procedure (Supreme Court Decision 98Do3051 decided December 8, 1998). Accordingly, if a person, without meeting such statutory requirements and disclosure procedure, arbitrarily defends against a decline in the stock price or executes a series of purchases and sales to maintain a particular price range, this constitutes a violation of the prohibition in the main text of Article 176, paragraph (3).
This chapter reads the structure of Article 176, paragraph (3) as a prohibition in principle and an exceptional allowance under procedural conditions. Going further, conduct that fixes or moves the market price of an underlying asset for the purpose of settlement profits from derivatives or equity-linked securities also touches upon the linked price manipulation of Article 176, paragraph (4). The linked price manipulation of paragraph (4) and the matters concerning derivatives-linked securities are treated together in Chapter 8, while this chapter examines the concept of price fixing under paragraph (3), the proof of purpose, and the boundary of the exceptional requirements.
| Category | 근거 조문 | Key Requirements |
|---|---|---|
| Prohibition in principle | Financial Investment Services and Capital Markets Act, Article 176, paragraph (3), main text | Series of purchases and sales, or entrustment or acceptance, for the purpose of fixing or stabilizing the market price |
| Exceptional allowance (stabilization operations) | Financial Investment Services and Capital Markets Act, Article 176, paragraph (3), subparagraphs 1 and 2 | Purpose of facilitating a public offering or sale; compliance with statutory entities, periods, price ceilings, and disclosure |
| Exceptional allowance (market making) | Financial Investment Services and Capital Markets Act, Article 176, paragraph (3), subparagraph 3 | Creation of supply and demand for a certain period after a public offering or sale; compliance with statutory requirements |
7.2The Meaning of Price Fixing: Forming and Fixing a Price, and Fixing an Already-Formed Price
A judgment applying the former Financial Investment Services and Capital Markets Act gives a concrete definition of the meaning of the price fixing prohibited by Article 176, paragraph (3) (Supreme Court Decision 2013Da2740 decided March 24, 2016). According to its reasoning, price fixing means to apply, by factors other than market factors, an artificial manipulation to the market price that would originally be formed in a free competitive market according to normal supply and demand, thereby forming and fixing the market price, or fixing an already-formed market price (Supreme Court Decision 2013Da2740 decided March 24, 2016). That is to say, included within price fixing is not only conduct that simply binds in place the existing stock price already formed in the market, but also conduct that creates the market price up to a target price range through artificial trading and then maintains that price range (Supreme Court Decision 2013Da2740 decided March 24, 2016).
The Summary of Decision of a judgment applying the Futures Trading Act also construes a transaction that fixes or moves the market price as a transaction having the potential to move the market price and the trading volume artificially in light of the price and volume that would originally be formed according to normal supply and demand (Supreme Court Decision 2006Do2718 decided December 11, 2008). At that time, whether a series of acts has the potential to fix or move the market price must be determined not by taking each act separately but by looking at the series of acts as a whole (Supreme Court Decision 2006Do2718 decided December 11, 2008). It is not even necessary that the market price was actually fixed or moved to the target price; it suffices that the possibility of such an artificial fixing or movement is recognized (Supreme Court Decision 2006Do2718 decided December 11, 2008).
The fixing of a market price is often accomplished through concentrated defensive buying or closing-price management in segments where downward pressure on the stock price arises. For instance, it may take the form of repeatedly submitting high-priced buy orders near the close of the market so as to prevent a forced sale of pledged shares, or so that the stock price does not fall below a certain level ahead of the reference date for calculating the issue price of a paid-in capital increase. Although such downside-support trading does not cause a sharp rise in the stock price in appearance, it impairs the market's price-discovery function in that it artificially holds in place, in a market naturally dominated by selling, a stock price that should have gone down.
This chapter takes the view that the judgment grasps both the movement and the fixing of a market price by the same standard, namely, an artificial departure from natural supply and demand. Nonetheless, the price-moving trading of Article 176, paragraph (2), subparagraph 1, which draws in buying interest by pulling up the stock price, and the price-fixing trading of Article 176, paragraph (3), which defends or binds a certain price range, are distinguished in the specification of the charged facts and in the provisions applied. Where the two forms of conduct were alternately deployed within a single criminal plan, the pattern of orders and the purpose in each segment are examined together as to how they are connected.
7.3Standards for Determining the Purpose of Price Fixing and Circumstantial Facts
Where the actor denies having the purpose of fixing or stabilizing the market price, the existence of that purpose is determined by aggregating relevant circumstantial facts such as the nature of the security in question and the trend of trading (Supreme Court Decision 2013Da2740 decided March 24, 2016). Its reasoning states that, in determining whether there was a purpose of price fixing, the nature of the security in question, the total number of securities issued, the trends in price and trading volume, the trading circumstances before and after, the economic rationality and fairness of the transaction, the market participation ratio, and continuous closing-price management must be comprehensively considered, together with the motive and manner of the transaction (Supreme Court Decision 2013Da2740 decided March 24, 2016). This shares its basic structure with the framework for determining circumstantial facts as to the purpose of inducing trades (Supreme Court Decision 2011Do8109 decided October 27, 2011).
The circumstantial facts that especially attract attention in price-fixing cases are the repeated submission of downside support orders at a particular price range and intervention in the closing price. When trading volume during the session is small or when selling volume appears and the price falls, buy orders are placed matching the immediately preceding trade price or a particular reference price; and when a trading pattern is repeated in which small lots of high-priced or market orders are submitted during the call-auction time slot to bring the closing price to a certain level, it is difficult to explain it as ordinary trading for investment returns. When this is combined with the motive that the actor had, at a particular time, a financial or contractual interest in maintaining the price above a particular level, the purpose of price fixing is supported (Supreme Court Decision 2013Da2740 decided March 24, 2016).
Conversely, the mere fact that the actor, simply to protect the value of holdings, purchased in installments within the normal market quote range, or temporarily placed buy orders in a stock with ample liquidity, is not sufficient to conclude that there was a purpose of price fixing. The economic rationality and fairness of the transaction are discerned by comparing the circumstances of the actor's funding, the timing and quote levels of the orders, the share of the actor's orders in the overall market trading volume, and the holding period after execution (Supreme Court Decision 2006Do2718 decided December 11, 2008). Whether a substantial portion of the orders is concentrated in the specific time slots and price ranges where price defense is needed becomes a key criterion of distinction.
The reasoning of the judgment has consistently pronounced that, in market manipulation, the coexistence of the purpose with other purposes does not impair its establishment (Supreme Court Decision 2013Do6962 decided April 12, 2018). Accordingly, even if the defendant invokes business motives, such as assisting the company's fund-raising or maintaining collateral value, so long as the defendant sought to fix the market price through an artificial series of purchases and sales without meeting the stabilization operation requirements prescribed by statute and regulation, the defendant cannot escape liability under Article 176, paragraph (3) or the related prohibition of market manipulation. This chapter reads business motives and the statutory stabilization operation requirements strictly apart.
| Circumstantial Fact Item | Points of Attention in Examining the Purpose of Price Fixing |
|---|---|
| Trends in price and trading volume; market participation ratio | The share of the actor's buy orders in downward segments and the price-defensive effect |
| Continuous closing-price management | Whether the closing price was repeatedly maintained through small high-priced orders in the call-auction time slot at the close of the market, and the like |
| Motive of the transaction and surrounding circumstances | The need to maintain a particular price, such as the reference date for a paid-in capital increase, the collateral maintenance ratio, and an option settlement date |
| Economic rationality and fairness | Whether the method of quotes, timing, and quantity is one that an ordinary purchasing investor would not choose |
7.4The Boundary Between Permitted Stabilization Operations and Market Making and Unlawful Price Fixing
The stabilization operations and market making exceptionally permitted by the proviso to Article 176, paragraph (3) presuppose a public-interest fund-raising procedure of public offering or sale. As the reasoning of judgment makes clear, for trading for the purpose of fixing or stabilizing the market price to be lawful, all of the strict conditions as to period, price, and entity, as well as the submission of statements and reports and the disclosure procedure, must be satisfied (Supreme Court Decision 98Do3051 decided December 8, 1998). For only by transparently informing market participants through disclosure that stabilization operation or market making orders may now flow in can investors avoid mistaking an artificial support price for a price formed by natural supply and demand.
Accordingly, where existing major shareholders or management, acting irrespective of any public offering or sale, mobilize nominee accounts or friendly forces and place downside support orders to prevent a decline in the stock price, there is no room for the exception of the proviso. Moreover, even if done in the course of a public offering or sale, where buy orders are placed outside the statutory stabilization operation period or in excess of the price ceiling set by the Enforcement Decree, or where the price is covertly supported without undergoing the stabilization operation report filing and the disclosure procedure, the conduct enjoys no protection of the proviso and becomes the market manipulation prohibited by the main text of Article 176, paragraph (3) or by paragraph (2).
The work of a market maker that has concluded a contract with the exchange and submits two-way quotes of both bids and asks for the purpose of providing liquidity is governed by the market manipulation exception under the Financial Investment Services and Capital Markets Act and by exchange rules. However, even borrowing the appearance of liquidity provision, if a person submits a large volume of one-sided orders for the purpose of artificially fixing or moving the settlement price or closing price at a particular time in order to obtain unjust gains, that person exceeds the permitted scope. In particular, large-volume orders surrounding the settlement price on the maturity date of equity-linked securities or options are the point at which the legal principle of price fixing under Article 176, paragraph (3) meets the legal principle of linked price manipulation under Article 176, paragraph (4) (Supreme Court Decision 2013Da2740 decided March 24, 2016).
This chapter holds that the core criterion distinguishing permitted stabilization operations from prohibited price fixing lies in market transparency through prior disclosure and in compliance with the statutory price and period limits. A private defense of the stock price carried out without notice to the market is evaluated as unlawful price fixing that harms natural price formation, even if the actor subjectively invokes market stability.
7.5Downside Support and Closing-Price Management in Relation to Other Types of Market Manipulation
In practice, defense against a decline in the stock price and closing-price management are not prosecuted or contested solely as price-fixing and stabilizing trading under Article 176, paragraph (3); it is common for them to be at issue together with the price-moving trading for the purpose of inducing trades under Article 176, paragraph (2), subparagraph 1. In a case where the actor attempted not only to raise the stock prices of eight issues but also to defend against their decline, using contracts for difference accounts, the Supreme Court also recognized the establishment of market manipulation through matched orders, high-priced purchases, exhausting the supply, and fictitious buy orders (Supreme Court Decision 2025Do21859 decided May 20, 2026). For conduct that artificially defends and maintains, or causes a rebound in, a market price that would otherwise fall likewise contains the effect of artificially moving the market price that would be formed by supply and demand (Supreme Court Decision 2011Do8109 decided October 27, 2011).
Going further, the concept of price fixing in Article 176, paragraph (3) of the former Financial Investment Services and Capital Markets Act likewise constitutes the central concept in the linked price manipulation of current Article 176, paragraph (4). Article 176, paragraph (4) prohibits conduct that, in transactions in derivatives, underlying assets, or linked securities, and the like, moves or fixes the market price of the counter-asset for the purpose of obtaining unjust gains or causing a third person to obtain unjust gains. That the Supreme Court, in a case where a large quantity of underlying shares was sold in order to block the fulfillment of conditions for early redemption or maturity redemption of equity-linked securities, also set forth the definition of price fixing under Article 176, paragraph (3), is because movement and fixing lie along a continuum (Supreme Court Decision 2013Da2740 decided March 24, 2016).
In the end, while opening an exception for lawful stabilization operations and market making at the time of a public offering or sale, Article 176, paragraph (3) performs the role of blocking, at the stage of a series of purchases and sales, other artificial price-fixing and stabilizing conduct. The plea that the actor stopped short of sharply raising the market price and merely held a certain price line is no ground for exemption before paragraph (3); rather, it may become a circumstance revealing the fixing purpose.
This chapter has set out the meaning of price fixing, the proof of purpose, and the limits of lawful stabilization operations. The concrete structure and the judgments concerning linked price manipulation, which seeks unjust gains by moving or fixing the market price among derivatives, underlying assets, and equity-linked securities, are dealt with in the immediately following Chapter 8. The question remaining here is which provision should first capture defensive buying in a declining market: the price-moving trading of Article 176, paragraph (2), subparagraph 1, or the price-fixing trading of Article 176, paragraph (3).
Statutes referred to
Decisions referred to
Questions left open
- Downside support orders repeatedly submitted in a declining market to defend the collateral maintenance ratio fall first under which provision: the price-moving trading of Article 176, paragraph (2), subparagraph 1, or the price-fixing trading of Article 176, paragraph (3)?
- How is the minimum number of repetitions or the minimum duration needed to establish the series of purchases and sales required by the main text of Article 176, paragraph (3) determined?
- By what circumstantial facts are the price-fixing trading of Article 176, paragraph (3) and Article 178-2, which regulates conduct liable to exert an undue influence on the market price through quotes or trading without a purpose, distinguished?