Samsung Securities 'fat finger' trade prompts scrutiny
South Korea’s financial regulator has urged the country’s brokerages to strengthen internal controls amid surging concerns over compliance protocols following a massive “fat finger” trade.
Samsung Securities, an affiliate of the country’s largest conglomerate, sparked chaos last week after an employee accidentally issued 2.8bn shares to staff — an amount theoretically worth about $100bn, and more than 30 times the brokerage’s issued share capital.
The company intended to pay dividends worth Won2.8bn ($2.6m) under a share ownership plan, but the employee entered the figures into the system as “shares” instead of “won”, the South Korean currency.
The company then took 37 minutes to halt the trade, by which point several employees had already sold the so-called ghost stocks.
The scandal initially prompted public outrage focused on the perception that the employees were trying to make a quick buck at the expense of other investors, and would have known very well that such massive stakes must have been bestowed in error.
Shares in Samsung Securities, the nation’s fourth largest brokerage, have dropped 10 per cent since Friday, knocking more than $300m off its market value.
But anger is giving way to concern about South Korea’s system for double-checking and verifying trades. Analysts say the fear is that smaller “fat-finger” trades might have slipped through unnoticed in the past and could happen again in future.
“I really don’t understand how this kind of incident could happen at a big company like Samsung Securities,” said Ahn Sung-hak, researcher at Hana Institute of Finance. “They should have a filtering system in place in order to prevent human errors or a warning system that can prevent the issuance of more shares than actually exist.”
South Korea’s National Pension Service — the world’s third largest pension fund — said on Tuesday that it had stopped using the broker to trade shares.
Also on Tuesday, Kim Ki-sik, the head of the Financial Supervisory Service, met with the chiefs of 17 brokerages and urged them to improve internal control mechanisms to prevent such incidents.
That came a day after financial authorities launched a probe into Samsung Securities and South Korea’s “overall stock markets system”.
According to media reports, the company has fired about 20 employees, including the 16 who immediately sold off their new stock. Those individuals did not receive cash payment for the stocks as the trade was halted during processing.
Samsung Securities did not respond to requests for comment.
This incident has also raised questions about how easily Samsung Securities could issue stock with so little oversight.
“We’re an OECD country. This could be a big issue for our market credibility,” said one businessman, adding that the Korean stock exchange should have a monitoring system in place to double-check the transaction.
Park Chang-kyun, a business professor at Chung-Ang University, echoed the sentiment, saying the regulator should also be held accountable.
“The first fault lies with Samsung Securities for neglecting a proper system to prevent this from happening. But the second fault lies with the financial regulator, which has neglected their role of supervising the brokerages’ internal computer systems and comparing them with global standards and legal requirements,” he said.
Since the incident on Friday, more than 200,000 South Koreans have signed an official petition on the website of the presidential Blue House, demanding that employees who sold the ghost shares be punished.
Additional reporting by Kang Buseong
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