South Korea’s stock exchange authority will probe any illegalities behind suspected high-frequency trading by the U.S. brokerages Citadel Securities and Bank of America Merrill Lynch.

According to financial investment sources on Monday, Korea Exchange (KRX), the country’s sole securities exchange operator, plans to convene its market monitoring committee to decide whether Merrill Lynch breached its KRX member obligations by engaging in high-frequency trading activities on behalf of Citadel Securities. The exchange is also investigating Citadel Securities separately to determine if its actions constitute unfair trading.

High-frequency trading is algorithmic trading used by big institutional investors that mostly targets small cap stocks by transacting large volumes of orders at extremely high speeds to drive up their prices and sell them for a quick profit. Such trading can be completed in milliseconds, often resulting in losses for smaller players such as retail investors who lack such a trading tool.

In February, Korea’s Financial Supervisory Service said it would step up the market monitoring of unfair trade practices, including high-frequency trading, on grounds that they could cause market disruptions.

Due to its volatile nature and potential to harm other investors, high-frequency trading is heavily regulated in other developed countries. The U.S. Securities and Exchange Commission in 2015 required high-frequency traders to register with the Financial Industry Regulatory Authority in an effort to impose greater oversight. A similar registration program was launched in Germany in 2013.

Some financial experts warn that high-frequency trading could disrupt the traditional market paradigm and open the door for more complex trading practices that operate on the fringes of the law.

By Jung Hee-young and Kim Hyo-jin

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