South Korean financial regulators and the nation’s stock exchange operator are investigating the cause of Thursday’s plunge of the main index, including sell orders made through Deutsche Bank AG’s local brokerage firm.
The Financial Supervisory Service and the nation’s bourse are jointly probing the reasons for the sell-off in the final minutes of trading on Thursday, said Kim Soo-mi, a spokeswoman for the financial regulator.
About 1.6 trillion won (US$1.4 billion) in sell orders were made through Deutsche Bank’s local brokerage firm, the financial regulator said in an e-mailed statement.
“The sell-off, most of which were orders were made through Deutsche, took investors by surprise,” said Chang In-whan, president of Seoul-based KTB Asset Management Co, which oversees the equivalent of US$9.9 billion. “Nobody had expected an unwinding of positions of this magnitude.”
Scrutiny of equity market swings has intensified since May 6, when a 20 minute drop in US equities briefly erased US$862 billion of market value. A transaction in Standard & Poor’s 500 Index futures helped spur the retreat, the Securities and Exchange Commission and Commodity Futures Trading Commission said in an Oct. 1 report.
On Thursday, the KOSPI plunged 48 points to 1,914.73 between 2:59pm and 3:01pm in Seoul after sales that Korea Exchange said were spurred in part by computer-driven trades before the expiration of options contracts. Deutsche Bank AG’s South Korean securities unit was the biggest broker of sell orders in all 20 of the most-heavily weighted stocks on the KOSPI, data compiled by Bloomberg shows.
Deutsche Bank’s Singapore-based spokesman Mark Bennewith declined to comment.
Korea Exchange said in a statement on its Web site that the market fell because of “program” selling.
The KOSPI fluctuated between gains and losses for most of Thursday’s trading session, before tumbling in the final minutes. The 2.7 percent retreat was the biggest decline among world equity gauges tracked by Bloomberg and pared the index’s gain this year to 14 percent.
“We’re investigating what caused the drop and whether there were any unfair trades,” Korea Exchange said in an e-mailed statement yesterday.
Yesterday, stocks erased an early rally, with the KOSPI falling 0.1 percent to 1,913.12 at the close, as regional stocks fell amid speculation that China will increase interest rates to curb inflation.
The Korean stock gauge climbed as much as 2.3 percent on the Korea Exchange earlier yesterday. The KOSDAQ, comprising mostly technology companies, lost 2.8 percent.
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