Securities firms face punishment for lax overseas trading management
By Lee Kyung-min
NH Investment & Securities Jeong Young-chae
The Financial Supervisory Service (FSS) will reprimand Samsung, Mirae Asset, NH and seven other securities companies for their inadequate management to prevent possible human-induced trading errors, financial industry officials Friday.
The Korea Securities Depository (KSD) will also be subject to the punishment, they said.
Subject to possible disciplinary measures are major investment banks (IB) including Korea Investment & Securities, Mirae Asset Daewoo, NH Investment & Securities and Samsung Securities.
KB Securities, whose IB license was approved recently by the Securities and Futures Commission (SFC) under the Financial Services Commission (FSC), will manage to avoid punishment.
Brokerages are expected to be fined, while at least a verbal warning is in store for the KSD.
KSD CEO Lee Byung-rhae
This follows a May 30 deliberation from a disciplinary commission under the FSS.
The degree and extent of final disciplinary action will be determined following a review of both the SFC and FSC as early as later this month.
The punishment comes about a year after the FSS launched an industry-wide probe into 17 brokerages and the KSD following a series of fiascos that stemmed from lax management of both domestic and overseas trading.
Mirae Asset Daewoo President Kim Sang-tae
Widely dubbed a “fat finger” scandal, 16 Samsung Securities employees sold off a combined 5.01 million shares worth 182 billion won ($154 million) in April 2018, in a blatant attempt to seek short-term gains based on an obvious mistake of a firm employee.
The collective action raised the “moral hazard” issue as it came despite a repeated warning that the shares had been issued because a firm employee entered 1,000 shares instead of 1,000 won by mistake.
In the following months, Eugene Investment came under fire after an employee's mistake led to undue capital gains of a customer.
The customer who had a U.S. exchange-traded fund (ETF) account with Eugene Investment was able to gain 17 million won after the value of his shares quadrupled.
Korea Investment & Securities CEO Jung Il-mun
However, the “erroneous” capital gains resulted from the securities firm's failure to subsequently reduce the number of his shares by a quarter in time, a follow-up that should have been completed in line with the change in per-share value.
The Eugene employee was found to have changed only the price of customers' shares, not the numbers.
The financial authorities are expected to determine whether to make public a far greater number of similar or more embarrassing mistakes that have been kept undisclosed.
“I cannot comment further about matters concerning ongoing investigations,” a senior FSS official said. “We will make an official statement when the investigation is concluded.”
Samsung Securities CEO Chang Seok-hoon
Similarly, the KSD is expected to hold a press briefing or issue a statement in late July.
“We consider the issue a problem that concerns not only us but the whole industry,” a KSD official said.
“A consulting agency-commissioned review in which securities firms participated in questioning is ongoing. It is about ways to improve the financial health of the industry among others. We will be able to give more details as soon as the review is over.”