Another local stock plunge raises questions

Dealers look at computer monitors at the headquarters of Hana Bank in central Seoul, Thursday. Yonhap

Overseas travel ban issued on online stock community leader

By Anna J. Park

Financial authorities are investigating what triggered five local stocks to plunge during Wednesday's trading session, vowing to protect investors from manipulative market schemes. Each of the five companies stated in disclosures on Thursday that they could not identify any evidence of alleged unfair market trading or manipulation.

According to the Korea Exchange (KRX), stock prices of five companies ― Dongil Industry, Dongil Metal, Manho Rope & Wire, Taihan Textile and Pangrim ― fell by 30 percent during Wednesday's session, hitting daily rock bottoms. The Korean stock market rules stipulate that a stock's price cannot rise or fall over a daily range of 30 percent from the price of the previous session.

As the prices of the five stocks ― four listed on the main benchmark KOSPI market and the other on the tech-heavy Kosdaq market ― nosedived, a total of 504 billion won ($393 million) evaporated from their market caps.

Sensing suspicious movements, the KRX suspended trading of the five stocks on Thursday, requesting the firms to announce disclosures regarding the matter. The suspension will continue until the investigation is completed.

The five companies issued almost identical disclosures, Thursday, stating that they were not aware of anything suspicious.

The market bourse operator together with the Financial Supervisory Service (FSS) and the Financial Services Commission (FSC) are looking closely into the matter to see whether the situation is similar to April's stock market manipulation scheme involving highly leveraged trading of contracts of differences (CFDs) on eight local stocks.

Some market watchers see the current incident as having a different pattern from the CFD-related scheme led by Ra Deok-yeon, as eight stocks plummeted at the same time during the previous scheme, following a huge amount of counter-selling in the CFD accounts of a foreign securities firm that handles CFD trading. This time, the five stocks' selling orders came from various local brokerage firms, some of which do not operate CFD accounts.

While the exact cause of the sudden price plunge for the five stocks is not yet known, the stocks share the common feature of being recommended for buying by an online community. The leader of that community is said to have recommended the stocks on the grounds that they have a very low price-to-book ratio (PBR), meaning that they are undervalued for their worth. The community leader defended himself saying he was also a victim of the plunge.

Financial authorities said they will look into the matter thoroughly and respond sternly to any signs of market manipulation. Meanwhile, Seoul Southern District Prosecutor's Office issued an overseas travel ban on the community leader, Thursday.