The KOSPI has fallen nearly 20% from this year's peak, prompting FSC chairman Choi Jong-ku to propose that lawmakers abolish the securities transaction tax.
Once the improvement measures are enacted, innovation will be accelerated as the fundraising environment for small enterprises will improve, said FSC chairman Choi Jong-ku.
JPMorgan and Citibank are still being investigated in an ongoing price manipulation probe by the Fair Trade Commission and FSS which dates back to 2011, reports local media.
The 500 billion won fund will start investing in the KOSDAQ from November. Separately, market participants will establish an emergency monitoring system to better respond to instability.
The Korea Financial Investment Association will examine internal operations at securities firms in a bid to prevent order-handling accidents and restore market confidence.
The FSC has set limits on banks providing mortgage loans based on debt service ratios in new rules that will come into effect from 31 October.
The measures, though not yet finalised, follow recent concerns about stock trading systems at financial institutions in South Korea.
New legislative revisions could subject illegal short sellers to up to 10 years imprisonment and fines amounting to 1.5 times profits on short selling.
Under the plan, CEOs and executives would face eligibility requirements on the basis of qualifications, a clean criminal record, and historical work performance.
The FSC plans to ease rules that are said to limit the shareholder rights of domestic private equity funds and put them on even footing with foreign funds.