By Kim Tae-gyu
Staff Reporter
While coming up with investment vehicles last year dubbed ``equity-linked warrants,'' or ELWs, UBS Securities and Citigroup Global Markets Securities pledged to buy them back at a favorable price when there were few transactions on the market.
However, the two foreign brokerages failed to meet the promise of providing sufficient liquidity for some of their products, causing the Korea Exchange (KRX) to fail them in its quarterly evaluation of 18 brokerages.
``ELW issuers are supposed to bid to buy or ask to sell ELWs at favorable prices when the gap between bids and offer prices extend too much,'' KRX Vice President Lee Yong-gook said Wednesday.
``However, UBS and Citi went back on their word with some of their products. Hence, we failed them in an evaluation of measuring how well securities firms provided liquidity over the Oct.-Dec. period of 2008,'' he said.
ELWs are designed for trading options on underlying securities and are more popular than regular options because the former requires a relatively small amount of investment compared to the latter.
UBS and Citi qualified for grade ``A'' but didn't get the mark because they failed to keep the bid-offer spread at an appropriate level.
UBS in particular ranked highest with an overall mark of 93.4 points, but the outfit was not ranked, along with Citi, because it had violated the requirements.
``The violation happens more often than not when brokerages do not pay adequate attention and when they lack sufficient supervisory staff,'' Lee said.
``I don't think that UBS and Citi intentionally violated the obligation. I hope they adhere to it down the road,'' he said.
As for the third quarter of last year, Samsung Securities and Merrill Lynch failed for the same reason as UBS and Citi.
When contacted, a Citi executive refused to comment on the issue as did UBS.
Meanwhile, Credit Suisse ranked first in the KRX evaluation, which involves various criteria such as fulfillment of obligations, trading amount and spread.
Goodmorning Shinhan Securities and Daewoo Securities followed Credit Suisse at the top of the list.