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| The Financial Supervisory Service (FSS) launched an investigation Friday into the cause of a massive trading loss at HanMag Securities, Thursday. The brokerage house is estimated to have suffered unexpected losses worth 46 billion won by exercising its call and put options exceptionally higher or lower than market prices on the KOSPI200 index market. / Yonhap |
Brokerage firm under probe; loses W46 bil. on wrong order
By YI Whan-woo
HanMag Securities is on the verge of bankruptcy after it failed to settle most of its transactions by the 4 p.m. deadline Friday following a critical ordering mistake on index options transactions made Thursday.
The Korea Exchange (KRX), the country's sole securities exchange operator, said Friday that the small-scale brokerage house specializing in futures is liable to default.
"The company had to settle transaction payments worth 58.4 billion won by the deadline, but only paid 1.4 billion won. As a result, we paid the remaining 57 billion won with reserves set aside by securities companies for emergency settlements," a KRX spokesman said.
"HanMag obviously must pay us back the amount and we're discussing the best way to settle the matter," he added. "We will make a final decision after seeing the outcome of the financial regulator's investigation."
The Financial Supervisory Service (FSS) launched an investigation to find out the exact cause of the mistake made by the company.
The FSS will strip HanMag of its securities license if it finds any wrongdoing conducted by the firm or if it falls into capital erosion due to the losses caused by the mistake.
"The company is estimated to have suffered losses worth 46. billion won ($43.67 million). Given that its equity capital is only 20 billion won, it is probable that it will fall into default," the KRX official said. According to the Financial Supervisory Service (FSS), the firm's debt stood at 120.27 billion won as of March, while its total assets were 140.57 billion won.
Earlier, the KRX banned the firm from stock trading and debt assumption. The KRX said the measure was to prevent the firm from inflicting losses on investors on the benchmark KOSPI and other bourses.
"We have taken steps against HanMag Securities to protect investors from possible risk caused by the company's failure to make payments in accordance with its decision on Thursday," the KRX said in a press release.
The brokerage house suffered the unexpected losses by exercising its call and put options exceptionally higher or lower than market prices on the KOSPI200 index market, Thursday morning.
On its website, HanMag Securities attributed the error to its computer network. Industry experts said that it is likely that there was an error at the firm's automatic profit-taking trade program.
An option is a contract which gives the buyer the right to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. A call option is the right to buy, while a put option is the right to sell.
There were a total of 36,100 trades associated with the incident involving 46 traders. The trade amount across the securities market was about 6.3 billion won, and across the derivatives market, 58.4 billion won, according to the KRX.
"We're doing our best, but we urge all our customers to reconsider making trades involving our products in case other unpredictable situations occur," HanMag stated.
Of the 46 traders, a number of them were securities companies that made deals on behalf of foreign investors, according to the KRX.
"It's almost impossible to find out all those foreign investors and ask their support in helping HanMag Securities," the KRX said.
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