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For Samsung Securities, woes keep coming

Brokerage might lose contracts with BOK and Finance Ministry
Apr 14,2018
Samsung Securities risks losing major contracts with the Finance Ministry and Korea’s central bank as its fat-finger trading error continues to damage the company’s standing.

The Ministry of Strategy and Finance said on Friday that it is considering stripping the brokerage off the status as a primary dealer, which entitles it to buy government securities directly from the government and then resell them on the market.

“We are considering canceling the agreement with Samsung Securities,” said a source at the Finance Ministry. “[The ministry] is particularly concerned about the possibility the event was a market manipulation action.”

Samsung Securities mistakenly delivered 112.6 trillion won ($105.2 billion) worth of nonexistent shares to employees as part of their stock ownership plan last Friday because of an input error. The Financial Supervisory Service and Financial Services Commission launched an investigation into the company earlier this week.

The source went on to note that the ministry can terminate the dealership agreement if a brokerage violates the Capital Markets Act and the orders stipulated by the financial authorities.

The Bank of Korea (BOK) decided to stop trading with the brokerage.

“The Bank of Korea tentatively stopped Samsung Securities from handling the sale of foreign currency bonds,” said Suh Bong-gook, director general of the international department at the BOK.

“We’d like to see how the investigation unfolds as other institutions withdrew their contracts with Samsung Securities,” Suh said.

Samsung Securities was among four local brokerages registered to handle sales of foreign reserve currencies.

A number of pension funds, including the National Pension Service, decided on Tuesday to stop using Samsung Securities as their brokerage, questioning its moral standards. The National Pension Service is the country’s largest institutional investor, managing more than 600 trillion won in assets. The erroneous trading scandal is affecting Samsung Securities’ future business plans.

The troubled company said on Friday that it won’t proceed with its work to raise a large investment fund through the establishment of a so-called special purpose acquisition company.

Special purpose acquisition companies are used as investment vehicles designed to acquire an unspecified target company after raising funds from investors. Korea Exchange, the country’s stock board operator, granted preliminary approval to Samsung Securities in February to launch the special purpose unit, and gave it only six months to do so.

“For the moment, we decided to put the process on hold because we need to focus on consumer protection after the trading error accident,” said a public relations official at the company.

While the losses associated with the trading error widen, experts believe bigger problems for Samsung Securities will come from potential regulatory penalties.

“The broader and more lasting damage likely will come from potential disciplinary actions,” said Ok Tae-jong, an analyst at Moody’s Investors Service, in a report released on Thursday.


BY PARK EUN-JEE [park.eunjee@joongang.co.kr]