Value context and insight. lkm@koreatimes.co.kr
Brokerages to diversify US daytime service partners, reduce dependence on Blue Ocean
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By Lee Kyung-min
A growing number of brokerages are looking for new U.S. trading service providers to replace the widely-criticized Blue Ocean US Equities, frustrated by five months of service disruptions after the de facto exclusive provider of daytime trading unilaterally halted services for Korean retail investors, market watchers said Wednesday.
Blue Ocean US Equities is a data feed provider that offers pricing information during non-standard trading hours in the US equity market, enabling trading outside of regular market hours.
However, industry watchers say a swift resumption of the U.S. entity-mediated service is unlikely, given the lack of investor protection exposed by the Blue Ocean debacle. The platform denied buy and sell requests from 90,000 account holders after 2:45 p.m. (Korean standard time), during the Aug. 5 market rout last year, incurring 630 billion ($428 million) in investor losses.
The Korea Financial Investment Association (KoFIA) representing the brokerages filed a complaint with the U.S. Financial Industry Regulatory Authority over the legality of Blue Ocean’s actions. However, the U.S. regulatory body has since maintained a cautious stance, asking that facts be verified. Blue Ocean denied any claims of malpractice or errors, refusing to accept accountability.
Brokerages say that shock from the unprecedented incident notwithstanding, compensation is not an option due to breach of trust concerns from a lack of regulation on investor damages caused by external factors.
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According to financial market sources, the viable alternatives to Blue Ocean include 24 Exchange (24X), a trading platform, an unidentified U.S. fintech firm and the New York Stock Exchange (NYSE).
The most likely new partner is 24X, backed by Steve Cohen's hedge fund, Point72 Ventures, since it plans to open U.S. day trading services in the second half of next year.
Officials of 24X and local brokerages will have a meeting this month as arranged by the KoFIA to assess a potential collaboration and determine whether the former will be able to replace Blue Ocean.
The development reflects the surging popularity of U.S. stocks over the past few years, propelled by the stagnant performance of the local equity market.
According to the Korea Securities Depository, Korean retail investors’ net holdings of U.S. stocks came to $117.5 billion Tuesday, a 74.6 percent year-to-date increase from $6.7 billion. It was the first for the figure to top $100 billion. They net purchased $10.9 billion worth of U.S. stocks from Jan. 1 to Dec. 24 last year.
The market remained bearish over the past few weeks, weighed down by the hawkish-than-expected U.S. Federal Reserve on the pace of easing.
However, at least 75 basis points of the Fed cuts throughout next year have yet to be fully priced in, leaving for upbeat market sentiment for the remainder of the year.
According to the Korea Capital Market Institute, in the 45 days after the Aug. 5 market rout, sell orders dropped 11.89 percent and buys slumped 17.94 percent.
NICE Investors Service data showed brokerages registered over 1.3 trillion won in foreign securities custody fees last year.
Samsung Securities was the first to partner with Blue Ocean in February 2022, and 19 brokerages have since added the trading platform to their services.