Anna Jiwon Park has been covering the politics at The Korea Times since the summer of 2024, when she joined the press pool for the Office of the President in Korea. Prior to that, she spent about five years reporting extensively on financial markets, regulatory authorities and the financial industry. She joined The Korea Times in 2019 after spending eight years as a broadcast journalist at Arirang TV, Korea’s leading global broadcaster, covering politics, defense and culture.
Local brokerage firms halt CFD trading amid increased market volatility
A view over Seoul's financial district Yeouido / Yonhap
By Anna J. Park
FSS vows thorough probe into stock price scams involving unfair trading
By Anna J. Park
Local brokerage companies have begun to prohibit customers from opening new accounts for trading contracts for difference (CFD) ― a financial derivative product tied to the difference in price of a contract's opening and closing prices ― following a recently-revealed stock price manipulation scam involving eight local stocks, including Samchully, Daesung Holdings and Daou Data.
As the Ponzi-style stock scheme turned out to have used high-leveraged CFD trading to manipulate the prices, local securities companies are limiting customers' further access to CFD transactions, aiming to minimize both clients as well as the brokerage firms' potential losses from the highly risky bets.
Samsung Securities halted new subscriptions to CFD accounts from Thursday evening and also stopped receiving new selling or buying orders from CFD trade accounts. Korea Investment plans to suspend receiving any new orders from CFD accounts from May 1. Only liquidation settlements will be possible at existing CFD accounts at both Samsung Securities and Korea Investment.
Shinhan Investment and DB Financial have suspended CFD trading in the eight stocks that are involved in the scheme, while Meritz Securities plans to operate the CFD brokerage in a more cautious manner. NH Investment and Hana Securities will not be taking any measures, as they do not operate sizable CFD transactions at their house. Mirae Asset Securities does not provide CFD transactions.
Some 1,500 high-income earners have allegedly been swindled by the scam, resulting in a strong losing streak of most of the eight stocks since Monday. The prices of the four stocks ― Samchully, Daesung Holdings, Seoul Gas and Sun Kwang ― fell by over 75 percent this week, hitting daily low limits for four consecutive sessions. The other four stocks ― Sebang, Daou Data, Harim and Daol Investment ― also lost some 40 to 60 percent of their stock value since Monday.
Financial Supervisory Service (FSS) headquartered in Seoul / Courtesy of FSS
In line with the brokerage firms' moves, the financial authority has also urged them to take extra care in managing risks in their leveraged investments, including CFD transactions. The Financial Supervisory Service (FSS) held a meeting with the CEOs of 35 local securities companies Friday morning to share positions on the necessity of heightened risk management in leveraged investments.
During the meeting presided by the FSS' deputy governor, the financial watchdog agency called on the brokerage firms to restrain from excessive CFD businesses, stressing that excessive leveraged investments could bring forth increased market volatility and uncertainty.
The 35 securities firms responded to the authority's urge, vowing to strengthen preparatory reserves to increase their total loss-absorbency capacity (TLAC). The annual transactional amount of CFD trade has exponentially grown to 70.1 trillion won ($52.3 billion) in 2021, from 8.4 trillion won in 2019 and 30.9 trillion won in 2020. Due to its extreme risks, CFD trades are not allowed to retail investors under the U.S. regulatory regime.
Financial Supervisory Service (FSS) Governor Lee Bok-hyun speaks during a meeting at the headquarters of Mirae Asset Securities in central Seoul, Friday. Courtesy of FSS
FSS Governor Lee Bok-hyun, a star prosecutor-turned-financial regulator, also emphasized that the watchdog agency will sternly investigate the stock price manipulation scheme.
“Taking a strict stance over any unfair transactions is a very basic element in earning market trust. The FSS will sternly and promptly investigate allegations involved in stock price manipulation scams,” the FSS chief said Friday after he held a meeting on retirement pension reform at the headquarters of Mirae Asset Securities in Seoul.
He added that the Financial Services Commission (FSC), the country's top financial regulator, the FSS and the prosecution are closely cooperating in matters of investigating allegations of unfair stock trading.