NPS halts trading with Deutsche Bank Korea

Korea’s biggest investor the National Pension Service said Thursday that it would stop placing stock and derivative orders with the Korean branch of Deutsche Bank AG for six months following the regulator’s six-month suspension of the local unit.

The pension fund will not trade through the German brokerage “to limit exposure to institutions that received regulatory penalties, in order to reduce the risk,” a spokesman for the fund said.

The NPS manages over 324 trillion won ($289 billion) of assets and is the fourth largest pension fund in the world.

It said the fund would resume trading with the German unit once the regulator lifts the six-month suspension on some of its operations. The Financial Services Commission on Feb. 23 placed temporary suspension on Deutsche’s derivative trades and some proprietary deals after the unit was caught placing massive sell orders on Nov. 11 that instantly knocked off almost 3 percent off the KOSPI in the closing 10 minutes.

Deutsche Securities Korea said the punishment was expected to incur 11.2 billion won in losses for the business in the next six months. It accounts for 9 percent of the unit’s total operating income from 2009.

“Those who plot for massive profits against huge market losses should be held accountable for their action. Policies can never catch up with investors’ fast changing tactics,” Sohn Byung-doo, head of G20 Bureau and former director at the international financial policy division at the Finance Ministry said.

The prosecutors raided the bank on Wednesday to expand its probe into stock manipulation allegations related to the Nov. 11 incident. They are planning to summon five senior bank executives to find out their role in the stock manipulation.

The Korea Exchange on Feb. 25 imposed a 1 billion won fine on Deutsche Bank for the same incident.

The Korea Teachers Pension has not decided whether to make a similar decision on the bank, according to CEO Lee Yun-kyu.

By Cynthia J. Kim (cynthiak@heraldcorp.com)