 Deutsche Bank chairman |
Deutsch Bank’s German headquarters is being targeted as Korea’s financial regulators have asked for help from the German authorities in tracking down accounts used to bombard the KOSPI stock market earlier this month.
Sources said that Seoul’s Financial Supervisory Service (FSS) has requested the German investment bank to hand over information for its investigation on the massive sell-off of Korean stocks earlier this month, which now has the moniker of “11. 11 Option Terror” among people in the financial industry here.
The FSS is also going to ask Germany’s financial regulators for help so they can find out who owned the accounts in question, and whether any illegal activities were involved in the trading.
Though there is so far no hard evidence of illegality, the joint investigation would be the largest scale of international cooperation with South Korea concerning white-collar crime. The investigation on the 1.6-trillion-won ($1.4 billion) selling has already dealt a critical blow to the reputation of Deutsche Bank in Korea.
Edaily, a local financial news service, first reported on Thursday, citing an unnamed source, that the FSS has sent a formal request to the German bank’s headquarters and its London branch, and is to send another request to regulators in Germany for help.
A separate source confirmed this to The Korea Times on Friday.
“The FSS will do it. Without looking at the headquarters, it will not get anything (from the Korean branch). It is a necessary step,” an official with knowledge of the matter said, asking not to be identified. So far, only the local brokerage arm of Deutsche Bank in Seoul has been under the scrutiny of the FSS and the Korea Exchange.
Lee Jeong-eui, director of the Capital Market Investigation Bureau One of the FSS, declined to confirm, citing the financial regulators’ policy of not commenting on ongoing investigations. But he said that cooperation with Germany is highly possible.
“Last summer, we became a member of the International Organization of Securities Commission. So now we have a formal channel in which we can demand cooperation for our investigation,” he said. The IOSCO is an international organization to prevent and protect from securities fraud and financial related crimes with members including 182 agencies from over 100 countries, according to the FSS.
“Before joining, we could only utilize informal communication channels. But now we don’t need to do so, because we can formally make requests,” Lee said.
Deutsche Bank’s spokesperson in Asia, Mark Benewith, declined to comment.
The KOSPI index plunged 53.12 points on November 11 as one or more unidentified foreign investors sold off more 1.6 trillion won worth of shares through the German bank’s Korean securities unit. The rest of the market couldn’t react to the massive order because it was made in the final 10 minutes, when ordinary trading is suspended and deals are processed all at once in the end.
It was thought that certain investors tried to unload stocks they had accumulated from arbitrage trading between equity and futures over the past few months. Nov. 11 was the expiration date of many option contracts.
The benchmark KOSPI, as well as shares of many blue-chip firms such as Samsung Electronics, plunged and many traders and investment funds lost money at the end of the day from high-leverage derivative trades. Various rumors say that Deutsche’s Seoul office carried out the deal on behalf of its London office for its own sake or for certain hedge funds, but none of this has been confirmed.
The selling was not illegal in itself except that the bank was a few minutes late in reporting its intention of the massive selling to the exchange, which is subject to a minor fine. But regulators and exchange officials suspect that there could be some individuals or institutions engaged in insider trading, as they might have been tempted to use the information of the sell-off to their advantage.
For example, buying put options, or selling stocks in advance, could have earned one a big fortune if he or she knew what Deutsche was going to do. In some cases of option contracts, investors indeed were awarded a profit of hundreds of times their investment. “There are signs that smell. It would be strange if they did not try to take advantage of it,” the source said.
Coincidentally, Josef Ackermann, the CEO of Deutsche Bank, was in Seoul at the time of the trading as he was participating in a business forum held on the sideline of the G20 Seoul Summit. The next day, the FSS launched an investigation jointly with Korea Exchange on the Korean branch of Deutsche. But so far they have not announced any results from it.
The German bank has been in Korea since 1978 and claims to have more than 300 employees. “A strong partner of Korea,” its Korean Web site says, while its English site says it differently as “A strong partner in Korea.”
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