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.
Kiwoom Securities becomes playground for stock manipulators
The headquarters of Kiwoom Securities in Yeouido, Seoul / Courtesy of Kiwoom Securities
By Anna J. Park
Brokerage's outstanding receivables stand at 500 bil. won
Kiwoom Securities's risk management ability is being questioned once again as the brokerage, which has the largest share of the online trading market, has been hit with huge outstanding receivables due to a trading suspension of a manipulated stock, according to industry officials, Sunday.
According to the state-run electronic disclosure system operated by the Financial Supervisory Service (FSS), Kiwoom Securities reported that 494.3 billion won ($365 million) in outstanding receivables were incurred in customer consignment accounts due to the stock price plunge of Youngpoong Paper last week.
The paper company's share price plummeted to its daily limit low last Wednesday, and trading of the stock was suspended the following day. The amount of the outstanding receivables exceeds the brokerage firm's net profit of 425.8 billion won posted during the first half of this year. It is also about a third of Yoongpoong Paper's current market cap.
"As of Oct. 20, the size of the outstanding receivables for the stock is approximately 494.3 billion won. Kiwoom Securities plans to collect the receivables through liquidation, and the final amount of receivables may be reduced depending on customer repayment," the brokerage said on Friday afternoon in a notice posted on the electronic disclosure system.
As most of the accounts that incurred the outstanding receivables are found to have purchased only Youngpoong Paper shares, suspicions are growing as to whether those involved in the stock price manipulation used Kiwoom Securities as their base to open accounts to execute the stock manipulation scheme.
The stock price of Youngpoong Paper displayed a steep rise this year. Based on the revised stock price reflecting a bonus issue conducted in April, the increase rate of the paper company's stock price stood at a whopping 730 percent.
Such unusual price hikes led financial authorities to detect abnormalities related to the trading of Youngpoong Paper shares and sent the case to the prosecution, which conducted a search and seizure on the residences of alleged stock manipulators early last week. Financial authorities believe the accomplices sold a large amount of the stocks on Wednesday, after they found out about the arrest warrants, resulting in the steep share price plunge. Accordingly, the authorities ordered the indefinite suspension of stock trading of Youngpoong Paper from from Thursday.
Kiwoom Securities CEO Hwang Hyun-soon speaks to reporters when he attended a seminar hosted by the Korea Financial Investment Association (KOFIA) on April 28. Newsis
Market watchers claim that Kiwoom Securities' lax stance on receivables was partly responsible for the plunge. Most major brokerages, including Mirae Asset, Korea Investment and Securities, NH Securities, Samsung Securities and more, sensed the increased risk related to Youngpoong Paper's soaring stock price and stopped allowing leveraged investments on the issue during the first half of this year.
But Kiwoom Securities continued to allow leveraged investments in the stock until the share price took a nosedive last week.
“It's hard to understand why a major brokerage like Kiwoom Securities did not block outstanding transactions for Youngpoong Paper stocks,” a financial investment industry source pointed out. “It appears that the brokerage's internal risk control system did not function properly,” the source added, highlighting that the limits placed on receivable transactions is a brokerage firm's basic risk management control function to prevent both unreasonable amounts of customer debt and to protect the firm's capital soundness.
With the lack of proper risk management, Kiwoom Securities cannot avoid being criticized for providing a platform for stock manipulators, according to industry watchers.
Kiwoom Securities was also harshly criticized early this year for lax consumer protection measures related to contract-for-difference (CFD) trading, which was the key vehicle exploited during a massive stock manipulation scheme involving eight local stocks.