FSC tells Deutsche to take it or leave it

By Kang Seung-woo

In hitting Deutsche Bank with the harshest penalty ever levied on a foreign securities firm, financial authorities appear determined to make a statement against future stock market offenders.

In concluding that Deutsche Bank employees manipulated Korea’s stock market last year, the Financial Services Commission (FSC) banned the bank’s local operations from trading shares and derivatives through its own account here for the next six months.

The FSC has been probing Deutsche Bank after the benchmark Korea Composite Stock Price Index (KOSPI) fell 2.8 percent in the last 10 minutes of trading on Nov. 11 last year. Regulators say that Deutsche Bank employees, who had built up large proportions in derivatives, pushed through around 2.4 trillion won (about $2.13 billion) worth of trading during the last 10 minutes before closing to walk off with nearly 45 billion won in illegal profit.

The alleged manipulation coincided with the Group of 20 meetings in Seoul, which Deutsche Bank chief executive officer (CEO) Josef Ackermann was attending.

The FSC is also seeking the prosecution of five Deutsche Bank employees ― one from the company’s Seoul unit, three from its Hong Kong operation and another from its New York branch ― for their suspected involvement in the massive sell off.

“Deutsche Securities Korea evidently violated the regulations,” FSC Chairman Kim Seok-dong told beat reporters on Thursday.

“I acknowledge that the bank, while gaining a lot of profit, has contributed to the nation’s economy, but there is no exception to the rules.”

In the wake of the so-called “option shock,” financial regulators have scrambled to introduce measures to prevent future offenses, such as capping daily trading volumes.

“After the stock plunge, finance officials unveiled plans to prevent market crashes, which have been effective,” said a Seoul-based economist.

Market watchers say that the chances for a repeat case of stock market manipulation with comparable severity to the Nov. 11 activities are unlikely in the foreseeable future.

“Due to the business suspension, the brokerage unit in Korea is not allowed to trade derivatives at all,” the economist said.

“Through the tough response, the government has made it clear that anyone who deters the market can be penalized.”

Another observer said, “The financial regulators’ decision has a symbolic meaning in that it will strengthen its market surveillance to neutralize attempts by foreign investors to voluntarily manipulate stock prices in Korea.”

Some are worried that the punishments may have a negative influence on foreigners’ investment sentiment in Korea, citing that derivatives markets in neighboring countries including China are growing and foreign funds may increasingly move there.

Kim did not buy into that opinion, saying “I think that by penalizing those who violate the local regulations, the market can build trust with investors.”

In the industry, the six-month suspension is seen as an order to withdraw business from Korea.

Kim said, “If Deutsche Bank pulls out its securities arm as retaliation for the penalization for the violation, I do not care.”

Deutsche Bank is likely to be hit hard by the penalties.

It has pushed to become one of the top three issuers of equity-linked warrants (ELW). ELWs are basically call options or put options based on the price of blue-chip stocks listed on the KOSPI. Compared to other derivatives, ELWs are particularly popular among non-institutional investors because they are easy to trade on the Internet using home-trading systems, and are exempt from transaction taxes.

The Korean ELW market is the world’s second largest after Hong Kong, according to the Korea Exchange.

Ultimately, its reputation as a global financial institution will inevitably be hurt.

금융당국 시세 조종에 강력 대응

금융감독 당국이 `옵션 쇼크'를 일으킨 도이치뱅크와 도이치증권에 전례없는 강한 제재를 부과하면서 외국계의 증시 교란 관행을 뿌리뽑기 위해 강한 의지를 보였다.

금융위원회는 한국 도이치 증권과 도이치 뱅크 직원들이 작년 11월 11일 주가 폭락을 주도했다는 결론을 내리고 파생상품 영업 정지 6개월을 내렸다.

주가조작은 공교롭게도 도이치은행 회장이 G20 정상회담 차 한국에 방문하고 있던 시기에 발생하였다.

게다가 금융당국은 도이치은행 홍콩과 뉴욕지점, 한국 도이치증권의 관련자와 더불어 위법 행위자의 소속 금융회사를 함께 처벌하는 양벌규정을 적용해 한국 도이치증권을 검찰에 고발키로 했다.