'BofA Merrill Lynch warning' issued by Kosdaq
Bank of America Merrill Lynch Korea head Shin Jin-wook
By Jhoo Dong-chan
Bank of America Merrill Lynch (BofA Merrill Lynch) has recently boosted its presence on the tech-heavy Kosdaq market, but an industry insider says “the BofA Merrill Lynch bandwagon” is risky for private investors.
According to sources, BofA Merrill Lynch has recently increased its trading on the Kosdaq. The global financial heavyweight even traded shares of small firms with less than a 20 billion won ($18.5 million) market cap Monday.
The “BofA Merrill Lynch bandwagon” can also be seen where private investors follow the U.S.-based financial giant's trading patterns. When BofA Merrill Lynch buys shares of a Kosdaq-listed firm, private investors also buy the firm's stock.
Sources say it has been nearly three months since BofA Merrill Lynch started boosting its presence on the Kosdaq, and an industry insider said the firm's sudden debut is attributed to its use of quantitative trade” on the market.
Quantitative trade consists of trading strategies which rely on mathematical computations and number crunching to identify trading opportunities.
“The nation's stock market is too volatile and sometimes human expectations can bring about heavy losses. Quantitative trade only uses a computerized algorithm excluding analysts' perspectives,” said a Nomura analyst said.
“The system is based on complex logic that features numerous factors. I heard that quant trading (as it is called) is more suitable for the nation's stock market, but since it strictly trades based on computerized data, it sometimes sells a massive amount of shares right after buying them. Blind faith in the BofA Merrill Lynch's quant trade could sustain huge losses to private investors.”
BofA Merrill Lynch often uses the quant trade algorithm in managing financial institutes and hedge funds, he added.
BofA Merrill Lynch is a U.S.-based multinational investment bank and financial services firm that provides a wide range of financial services including mergers and acquisitions, equity and debt capital markets, lending, trading, risk management, research, and liquidity and payments management.
The firm, founded as U.S. banking giant Bank of America, was acquired Merrill Lynch in January 2009. It began rebranding all of its corporate and investment banking activities under the BofA Merrill Lynch name in September 2009.