South Korean prosecutors have charged four Deutsche Bank employees with illegally manipulating Seoul’s stock market last year to earn more than US$40 million on a single day, a report said yesterday.
Yonhap news agency said the German bank’s Seoul securities unit and the four employees — including three foreign nationals — were accused of amassing 44.8 billion won (US$41.3 million) through illegal trading on the spot and futures markets.
Deutsche Bank said in a statement that it denied the charges and would defend itself in court, according to Dow Jones Newswires. The bank said it did not authorize or condone any breach of market regulation.
The bank’s Hong Kong unit and securities unit in Seoul have both been under investigation for alleged market manipulation and unfair transactions on Nov. 11 last year, an options expiry day.
On that day Seoul’s benchmark KOSPI share index fell 48 points in the session’s last 10 minutes as a result of arbitrage trading between the spot and futures markets. During that time about 2.4 trillion won (US$2.16 billion) in sell orders from foreign investors were processed, most of them through Deutsche Bank’s local securities unit.
The KOSPI ended the day 53.12 points, or 2.79 percent, lower at 1,914.73.
Prosecutors said Deutsche Bank’s securities unit in Seoul and the four employees knowingly placed heavy sell orders so as to pocket massive returns from put options, which were structured to generate profits if the KOSPI plunged.
“All profits they made illegally have been confiscated by the court,” Yonhap quoted chief prosecutor on the case, Lee Seok-hwan, as saying.
South Korea’s securities market — the world’s largest in terms of volume of stock index options trading — saw its stability and transparency “seriously damaged” by the scheme, he said.
Yonhap said three of the four charged employees were foreign nationals and included an executive in Hong Kong, while the fourth was a South Korean executive from the bank’s securities unit in Seoul.
The four have ignored summonses by prosecutors, who plan to ask Hong Kong authorities and Interpol to help extradite them if they refuse to appear in court, the agency said without specifying their current locations.
South Korea, in common with other developing markets, has grown increasingly concerned at the potential risks posed by rapid flows of foreign capital.
In January, authorities announced new rules designed to reduce the risk of sharp stock market volatility triggered by derivatives trading.
In February, Seoul financial authorities suspended some local Deutsche Bank operations for six months over the alleged market manipulation, the -toughest-ever penalty imposed against a foreign securities firm.