South Korea’s stock market announced yesterday it would fine Deutsche Bank’s local brokerage 1 billion won (US$888,160) for improper transactions, the biggest penalty it has ever imposed.
The move comes after the some of the brokerage’s functions were suspended for six months by financial authorities on Wednesday for market manipulation, while prosecutors said on Thursday they were also looking into the case.
Deutsche Bank expressed regret, but said the move would disrupt “only a small fraction of its business” in South Korea.
The Korea Exchange yesterday ordered the German bank to pay the fine and urged it to discipline three employees.
“Deutsche failed in its duty to notify the Korea Exchange on time about its program trades, hurting investor trust in our regulatory system and causing confusion [in the market],” said Lee Cheol-jae, an executive director of the exchange’s Market Oversight Division.
The exchange said the Deutsche Bank’s local unit had engaged in improper arbitrage trading between the futures and spot markets and sold an excessive amount of shares in SK Telecom and KT Corp.
It said the brokerage provided misleading information about the nature of its arbitrage transactions and violated rules on large program selling orders, which should be reported in advance.
The German bank’s Hong Kong unit and local securities unit came under investigation for alleged market manipulation and unfair transactions following a plunge in the South Korean market on Nov. 1 last year, an options expiry day.
The benchmark KOSPI index fell 48 points in the last 10 minutes of trading due to arbitrage trading between the spot and futures markets. During that time, about 2.4 trillion won in sell orders from foreign investors were processed, most of them through Deutsche Bank’s local unit.
Five members of the bank’s staff are suspected of gaining 44.8 billion won through illegal trading.