By Kang Seung-woo
The nation’s financial regulator has decided to suspend operations of the securities unit of Deutsche Bank in Korea. The move is in response to alleged stock manipulation and illegal transactions, a source told The Korea Times Thursday.
But the source said that the severity of the punishment has yet to be decided.
“It is certain that the operation of Deutsche Bank’s securities unit will be suspended, but for how long has not been decided on,” said the source on condition of anonymity, as the case is still ongoing. According to him, a six-month suspension is the highest administrative sanction.
His remarks on the Financial Services Commission’s (FSC) punitive action came as the issue was discussed by the capital market disciplinary committee on the same day. A final decision on how to penalize Deutsche Bank’s unit will be made in the higher disciplinary decision-making committee later this month. The biweekly Securities and Futures Commission meeting is scheduled for Feb. 23 following the preliminary committee meeting.
The FSC said last month that they plan to come up with the final ruling by March.
The financial authorities have been investigating Deutsche Bank, as the German-based lender has been suspected of having taken advantage of a bearish run that it caused. It made a windfall gain of more than 100 billion won in the derivatives market on Nov. 11, when massive stock sell orders of 2.4 trillion won ($2.16 billion). It resulted in Seoul’s benchmark Korea Composite Stock Price Index (KOSPI) declining 53 points or 2.7 percent in the final 10 minutes of trading. This was due to arbitrage trading between the spot and futures markets.
Financial regulators found the bulk of orders were processed via Deutsche Bank’s brokerage unit, leading to an in-depth investigation by the Financial Supervisory Service (FSS).
The FSS dispatched its investigators to Hong Kong, as Deutsche Bank’s unit there made some of the big transactions in question during the stock market plunge.
In the wake of the “option shock,” the FSC unveiled plans last month to tighten requirements on financial derivatives trading. They include an introduction of a cap on the maximum daily trading volume.
Prosecutors said Wednesday they have launched a probe into the local brokerage unit in connection with the market plunge.
“The FSC has not yet filed a complaint or a request for an investigation, but we are looking into the matter, which seems questionable,” said an official at the Seoul Central Prosecutors’ Office.