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NPS halts trade with Samsung Securities over ‘fat-finger’ dividend

2018.04.10 17:01:18 | 2018.04.10 17:03:09
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South Korea’s Samsung Securities Co. is under growing pressure after the brokerage’s “fat-finger” trading chaos last Friday, which led to a trading halt from the country’s largest pension fund.

Samsung Securities had planned to pay cash dividends of 1,000 won ($0.93) to its employees last Friday, but the brokerage mistakenly paid employees with 1,000 shares each.

On Tuesday, the investment management office of National Pension Service (NPS), world’s third largest pension fund, said that it has stopped a direct transaction with Samsung Securities as of Monday due to concerns over the financial accident. As for trade restrictions that include consigned stocks, the pension fund said it will bring forward a decision after considering results of the ongoing investigation launched by the country’s financial authority.

The NPS’s move comes after Samsung Securities issued 2.8 billion shares to its employees when it was supposed to pay 2.8 billion won ($2.6 million) in dividends under a stock ownership plan, causing trading chaos and prompting its share price to fall sharply.

The trading error also raised questions over Samsung Securities’ trading system as “ghost shares” were sold in the market by mistake. The Financial Supervisory Service has launched an inspection into the brokerage’s internal system. More than 200,000 people have signed a petition on the Blue House website, demanding punishment against Samsung Securities and a ban on naked short selling in which investors can sell borrowed stocks.

Other pension funds including Teachers Pension, Korean Teachers’ Credit Union, and Government Employees Pension Service, also decided to temporarily suspend direct or indirect stock transactions with Samsung Securities.

An unnamed official from Teachers Pension said that the organization decided to hold off transactions until the FSS announces its inspection results and noted that it will select brokerages again after reflecting inspection results to its quarterly evaluation in June. Currently, the fund has transactions with 35 brokerages.

Government Employees Pension Service said that it temporarily halted trade with Samsung Securities and will decide whether or not to resume transactions after close monitoring.

The Military Mutual Aid Association announced it will also halt trade with Samsung Securities until the second quarter of this year, citing “there is a system risk.”

The latest decision by pension funds to stop using Samsung Securities to trade stocks is expected to affect the brokerage’s business. If the FSS imposes severe disciplinary measures on Samsung Securities, it is very likely that these pension funds will not resume trade with the brokerage.

An unnamed official from the financial investment industry said that the FSS inspection result will leave a black mark on Samsung Securities when pension funds evaluate their partner brokerages. The official added that their trade halt with Samsung Securities could continue on for a long term.

These pension funds offloaded 818,500 Samsung Securities shares worth 31.3 billion won in total last Friday.

Shares of Samsung Securities, meanwhile, plunged for a third trading session on Tuesday to close 4.44 percent or 1,650 won lower at 35,550 won. On Friday, the stock plunged 12 percent during the intra-day session before ending 3.64 percent lower at 38,350 won. It lost another 3 percent on Monday.

The company lost 380 billion won in market cap following the dividend debacle from 3.55 trillion won last Thursday.

By Han Ye-kyung and Lee Eun-joo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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