Unfair practices in the local derivatives market have become more frequent, according to a report from an opposition party lawmaker.
In his report for the National Assembly’s audit of Korea Exchange, Rep. Yu Won-il of Creative Korea Party said that irregular trading of derivative products has surged over the past few years.
There was just one such case in 2005, four in 2006 and four in 2007. But the figures have started to jump since then, climbing to eight in 2008, 27 in 2009 and 66 in 2010.
For this year, the derivatives market saw the number of cases of irregular trading come to 38 for the first eight months of 2011, according to Yu’s report.
The lawmaker said stock manipulation topped the list in terms of the type of irregularity, accounting for 53 percent of the irregularities in derivatives trading.
“Stock manipulation on the derivatives market was even more frequent, compared to cases on the main bourse. We’ve found that the situation is very serious,” he said.
He said the Korea Exchange and the Financial Supervisory Service should enhance oversight of the irregularities and hike fines on enterprises engaging in unfair stock disclosure.
After the 1997 Asian financial crisis, the derivatives market was opened and foreigners’ investment in Korean stocks expanded considerably.
During the 2008-2009 global financial crisis, a group of investors had to suffer extreme losses after buying foreign exchange-related derivatives, also known as KIKOs (Knock In, Knock Outs).
More than 100 retail investors have filed a class action suit against banks that sold them.
Under policies to prevent risks associated with derivatives from turning into systemic risks, the FSS launched a special monitoring system on derivative products, dubbed “the Integrated Derivatives Information System” about two years ago.
The system automatically gathers data from brokerage houses and investment banks every month.
It also analyzes transaction volume, gains and losses from derivatives trading by a variety of counterparties.
Over the past year, investment banks sanctioned by the FSS for irregular currency-related derivatives trading include Barclays, JPMorgan, HSBC Holdings, Credit Agricole and Royal Bank of Scotland.
By Kim Yon-se (
kys@heraldcorp.com)
