[EDITORIALS]Leaks, trading and fairnessIt is no small matter that two foreign securities firms operating in Korea -- UBS Warburg Securities and Merrill Lynch -- have been handed heavy penalties by the Financial Supervisory Service for leaking sensitive information that could move Seoul's stock market to favored large clients before the information was released to the public.
According to the agency, the two brokers disclosed research reports to their equity sales staff or to clients. Regulators found that UBS Warburg took advantage of the time difference between Seoul and other markets to use information about equity orders placed overnight by foreign investors, and leaked Korean clients' orders to their affiliates in Hong Kong.
The latest revelation of UBS Warburg's business practices clearly shows the evil effect of a monopoly on critical information by stockbrokers. When the London-based company released a research report on May 10 that downgraded its target price for Samsung Electronics, and because favored investors were prepared with sell orders before the announcement, the chipmaker's share price plunged 8 percent the same day, dragging down the main composite stock price index by more than 20 points.
Securities companies, whose job is to analyze equities and broker investors' transactions, will have the upper hand in gathering information, which is the biggest factor that moves share prices. If they use such information to attract clients and to serve the interest of their favored clients only, how can other investors trust them? Such practice would do damage only to small individual investors, who do not have access to the same information. If the practice of selective information sharing continues, it will undermine investors' trust in the fairness of the trading system, eventually leading to the collapse of the market.
Few believe that such practices are limited to foreign brokerage firms. Financial regulators should strengthen their monitoring and scrutiny of all securities companies operating here. Regulators should also crack down on possible rigging and leaking of information by securities firms through the trade media. Without fair rules, the stock market can never go up, no matter how much the economy improves.