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The Korea Exchange headquarters in Seoul

The Korea Exchange (KRX) is pursuing sanctions against US investment company Merrill Lynch for allegedly fomenting chaos on the KOSDAQ through high-frequency trading (HFT). If the company is actually sanctioned for HFT — which involves using computer algorithms to conduct automatic trades — it would be a first for South Korea.

The KRX announced on June 11 that it plans to hold a meeting of its Market Oversight Commission within the month to discuss sanctions against Merrill Lynch. In a previous meeting of its regulation committee, the KRX decided to refer the matter of financial sanctions or a caution or warning to Merrill Lynch to the Market Oversight Commission.

KRX is currently examining whether the HFT activity in question represents an “act of suggesting or trading at an asking price that has the potential to improperly influence market prices or give rise to misunderstandings through excessive trading relative to the market supply and demand conditions for a particular category,” as prohibited by Article 4 of its market oversight regulations prohibiting acts disruptive to a fair trading order. Last year, Merrill Lynch served as a channel for HFT by the US company Citadel Securities. The KRX is currently weighing plans to report Citadel to the Financial Services Commission (FSC) for “market disturbances” according to the Capital Markets Act.

“The specifics will be decided by the Market Oversight Commission,” a KRX official said.

The investigation began after a petition was posted on the Blue House citizen petition board by individual investors demanding the “punishment of market disturbances by Merrill Lynch” in response to large-scale HFT activity through Merrill Lynch last year.

On June 11, Citadel Securities said it had long cooperated with regulatory authorities around the world as a leading financial company in the global market and would cooperate with South Korean regulatory authorities on all matters related to it as a company.

By Park Su-ji, staff reporter

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