Investors hit by US stock trading halt seek resolution amid regulatory challenges

A trader works at the New York Stock Exchange, Wednesday. AP-Yonhap

Korean investors are seeking resolution from domestic brokerage firms after Monday's sudden cancellation of U.S. daytime stock trades worth a total 630 billion won ($457.5 million). Due to the incident, the daytime trading service will experience disruptions until Aug. 15.

The Financial Supervisory Service (FSS) confirmed that about 90,000 accounts and transactions worth a total of 630 billion won were canceled due to the suspension of U.S. daytime stock trading on Monday, when stock markets in Asia and the U.S. plummeted simultaneously.

Domestic brokerage firms offer a daytime trading service, which allows trading of U.S. stocks from 9 a.m. to 4:30 p.m. The service is provided in cooperation with Blue Ocean, an alternative trading system (ATS) in the U.S.

The issue arose when Blue Ocean notified the domestic brokerage firms after 4 p.m. (Korea time) that all orders placed after 2:45 p.m. would be canceled. As the Asian stock market plummeted, investors who anticipated a similar crash in the U.S. flooded the system with sell orders. This surge overwhelmed Blue Ocean's trading system, causing it to malfunction, according to the FSS.

The brokerage firms, following the request, sequentially canceled transactions one by one. However, this led some investors' accounts in NH Investment & Securities, Samsung Securities and KB Securities to be frozen even after the regular market opened at 10:30 p.m.

Many investors claim they were unable to trade in a timely manner during the high volatility and saw significant financial losses. As of 3 p.m. Wednesday, 109 complaints had been filed with the FSS.

"Due to the trading suspension, I missed the opportunity to purchase stocks at the very low prices available in the regular market. I was also informed that all the stocks I had bought at low prices in the daytime market would be canceled," an investor who attempted daytime trading at NH Investment & Securities said on condition of anonymity.

"NH is at fault for failing to restore the system quickly before the main market opened, causing trade disruptions and resulting in consumer losses. I have filed a complaint with the FSS, demanding a thorough on-site investigation, compensation for the numerous affected investors and accountability for NH," he added.

FSS Governor Lee Bok-hyun said to reporters on Thursday that he believes there is "some degree of responsibility (on the part of brokerage firms) simply because the autonomous decision-making of individual investors was compromised."

However, since the cause of the incident lies with the overseas exchange, it is unlikely that domestic securities firms will be held entirely responsible, according to market observers. Lee also said the FSS would prioritize voluntary adjustments and other measures to minimize investor dissatisfaction, while thoroughly investigating the causes and effects.

Meanwhile, the Blue Ocean has announced that only certain exchange-traded funds (ETFs) will be available for daytime trading until Aug. 15.

"Since all investors' daytime trading volume is executed through a single ATS, investors need to exercise extra caution," an official from the FSS said. "The FSS also plans to explore measures to improve the stability of overseas stock investments in the future."