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Brokerage tries to limit effect of trading blunder

Fubon Securities Co (富邦證券), the nation's second-largest brokerage, yesterday said it bought shares worth NT$5 billion (US$159.1 million) for its own account in a damage-control effort after erroneously placing a huge order for an overseas client the previous day.

To prevent the local stock market from tumbling, "we already bought back most of the shares [from the client] this morning," Fubon Securities spokesman Kenny Kuo (郭晃庭) told reporters.

A trader at Fubon Securities on Monday erroneously placed a bid of nearly NT$8 billion on behalf of Merrill Lynch International for a basket of about 280 stocks. Merrill Lynch International had asked Fubon Securities to place an order for NT$80 million.

The brokerage said it will absorb the additional shares that were bought and had already bought back shares worth NT$1 billion on Monday.

The brokerage has no plan to unload those stocks in the near term, as it expects a bullish stock market in the second half of the year, Kuo said.

It is estimated that the trading error incurred a paper loss of NT$450 million for the company, he said.

"This is the first step in fixing the mistake. Now we are carefully reviewing our internal [risk] control," Kuo said.

In an initial report, Fubon Securities blamed the new trading system for the error made by the senior trader, who was suspended from work.

Bill Lan (藍新仁), a fund manager with Jih Sun Securities Investment Co (日盛投信), blamed a malfunction in Fubon Securities' internal risk-control measures.

"It is common for traders to place wrong orders in their stressful working environment, but it is unusual to make such a big mistake. The amount [of shares involved] was huge," Lan said.

Lan yesterday praised Fubon Securities for its damage-control measures.

"The buyback actually offset likely sell-off pressure on the local stock market in the wake of the error," Lan said.

An official at the Financial Supervisory Commission said he hoped the Fubon incident will teach all of the nation's brokerages a serious lesson.

"Securities brokers should frequently review their risk controls and transaction procedures" to avoid operational blunders and thereby financial losses, said Lu Daung-yen (呂東英), vice chairman of the Financial Supervisory Commission, at a regular press conference yesterday.

As the Taiwan Stock Exchange Corp has full authority to deal with this incident, the commission will not intervene, but allow the exchange to directly mete out punishment to Fubon Securities, he said.

"Upon receiving the report from the Taiwan Stock Exchange, we'll decide whether any stock trading regulations need to be changed," Lu said.

The Taiwan Stock Exchange has launched a probe into the trading mistake and may penalize the brokerage with a fine of up to NT$100,000, stock-exchange president Chen Ming-tai (陳明泰) said.

The TAIEX yesterday advanced 0.22 percent, or 13.85 points, to end at 6,316.84.

The stock price of the brokerage's parent company, Fubon Financial Holding Co (富邦金控), climbed 0.47 percent to NT$31.75.
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