[Editorial] Stock debacle

Samsung Securities’ erroneous dividend payment on April 6 is a preposterous accident that has left a big mark on investors’ confidence in the Korean stock market.

The company wrongly issued 2.8 billion shares, when it was supposed to pay dividends worth 2.8 billion won ($2.62 million) to employees under a stock ownership plan. This accident was caused by an incorrect input into its stock trading network. It should have input the dividend payment of 1,000 won per employee share, but it erroneously issued 1,000 shares per stock. The market value of the 2.8 billion shares at the time was an astronomical 112 trillion won.

For about 40 minutes from 9:30 a.m. when stocks were wrongly issued, until 10:08 a.m. when the company finally halted its entire sell-off system for employee stocks, 16 employees sold off 5.01 million stocks valued at 170 billion won. During that time, the company sent urgent pop-up notices three times to all employees, instructing them not to sell the erroneously issued employee stocks.

But it was already spilled milk. In the market, Samsung Securities plunged 11.68 percent at around 10 a.m. and closed 3.64 percent lower, with 20.73 million shares changing hands. The trade volume was over 40 times more than that of the previous day. Those investors who dumped Samsung Securities stocks as their price plummeted inevitably suffered losses.

The accident shows the lack of morals among some employees of the stock brokerage firm. If a large amount of stocks mysteriously comes into your account, it is common sense to be suspicious and report it to the company. Moreover, the company notified employees of the accident and told them not to sell the stocks. Nevertheless, more than a dozen employees rushed to sell the stocks, to the detriment of their company.

Financial companies make profits by managing customers’ assets. Securities companies broker stock trades or trade stocks on consignment most of the time. Customers’ trust is the foundation of their business as they deal with their assets. Yet, the Samsung Securities employees who sold the stocks in question displayed criminal-like behavior. Nine of the 16 who sold wrongly issued stocks did so even before the company initially notified employees of the error.

Indisputably, the greater part of the blame should be placed upon those few “fat finger” employees who made incorrect dividend input and the 16 employees who sold off the fictitious stocks to try to pocket quick profits.

However, the accident is not entirely their fault. A bigger problem is that the market and its watchdog did not detect the erroneous share issuance until related news broke. Even as an astonishingly large amount of fictitious shares were issued due to an input error and some of them were traded in the market, though for less than an hour, alarms did not ring at Korea Exchange and the Financial Supervisory Service. It seems that there is no governmental supervisory mechanism in place to prevent such an accident. Financial authorities admit a wrongful stock dividend could happen at any other stock brokerage firm unless every firm strengthens its accident prevention and rapid response systems.

Even if it is hard for a financial watchdog to find and respond proactively to those accidents, it must try to come up with measures to help securities companies beef up their stock dividend and internal control systems.

The Samsung Securities incident has sewn distrust in the nation’s stock market. Investors would find it hard to put their confidence in a market where it is possible for a few working-level employees of a securities company to pay stock dividends erroneously without being controlled if they put their minds to it.

Taking this opportunity, the financial authorities must check the trading systems of all securities companies across the board and make them cover the gaps quickly.