Korea Exchange fines Deutsche Bank W1 bil.

By Kang Seung-woo

The brokerage arm of Deutsche Bank was hit with a record 1 billion won ($887,000) fine by Korea’s stock market operator Friday for illicit trade manipulation.

The Korea Exchange (KRX) said that Deutsche Securities Korea failed to notify the bourse on Nov. 11, when it placed a massive stock sell-off of 2.4 trillion won that triggered the benchmark Korea Composite Stock Price Index (KOSPI) to drop 2.79 percent, wiping out $26 billion in market value.

The previously highest penalty the exchange imposed was 250 million won on Kiwoom Securities in June 2009.

Investors are required to report to the KRX 15 minutes before the market closes at 3 p.m. if they want to place an order during the final 10 minutes of trading.

The Seoul bourse said that the Deutsche’s unit informed it of the sell orders one minute later than required.

“The local brokerage unit's massive sell-off deteriorated the fair market and helped specific investors gain illegitimate profits,” the KRX said in a statement. “The Deutsche Bank unit also failed to abide by regulations.”

The KRX also requested that one employee of the brokerage arm be dismissed or suspended, while two others be reprimanded or pay a financial penalty.

The decision came after the Financial Services Commission (FSC) banned the securities firm Wednesday from proprietary stock and derivatives trading here for six months.

It said that Deutsche Bank made an illegal gain of about 44.87 billion won from put-options, which were structured to reap profits on key index falls.

The regulator also filed charges with the prosecution against five Deutsche Bank employees ― one from the Seoul brokerage unit, one from its New York branch and three from the lender’s Hong Kong operation ― over illegal trades.

In a statement following the KRX’s measures, Deutsche Bank said that it deeply regrets the action, however respects the decision to impose such penalties.

“Deutsche Securities Korea will continue to strive to make a valuable contribution to the development of the Korean financial markets,” it said.

Prosecutors said Thursday that they have launched a probe into the brokerage unit at the FSC’s request.

The Seoul Central Prosecutors’ Office said it will first review the stock trade documents submitted by the FSC and Deutsche Bank’s Seoul branch and then summon five senior bank executives to investigate their role behind the carefully planned scheme.