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No playground for speculators

The prosecution will set a legal precedent if it confirms charges leveled by the stock exchange and financial authorities on Deutsche Bank AG, which has already been penalized for profiteering from price rigging and unfair trading on the derivatives market.

The prosecution launched a probe into the bank’s securities outlet in Korea after financial authorities slapped it with the heaviest-ever penalty of 1 billion won and a six-month suspension in trading of shares and derivatives. The Korea Exchange also demanded one staff member be dismissed and two others reprimanded through pay cuts or demotion.

On Nov. 11 last year, the benchmark Korea Composite Stock Price Index plunged 2.7 percent due to a cascade of selling orders at the last minute. Brokers of the German bank in Hong Kong and its securities outlet in New York dumped 2.435 trillion won of sell orders allegedly to bring down the key index just before the market closed after they bought a large amount of short positions. By exercising their rights after the index fell, they earned nearly 45 billion won through obligatory purchases from local buyers.

During an early probe by financial authorities, Deutsche Bank representatives argued that the profit had been made through normal financial trading, but could not respond when asked if they had ever earned so much money in a single trade in other markets. The bank clearly violated the rules by underestimating market players and regulators.

Foreign companies should, of course, not be discriminated against in local markets. But they should not be allowed to engage in unfair or illegal practices. Japan in 2004 banned Citigroup’s four Japanese outlets for a year after employees were found to be involved in money laundering. Citigroup sacked three senior executives. Since then, foreign companies have not played foul in the Japanese market.

Now that the ball is in the court of the prosecution, authorities must conduct a thorough investigation and demand due penalty if wrongdoing is found. Exchange officials say the 1 billion won fine is the largest-ever, but it would still be a small loss for the German bank, considering how much money it made from the unfair trading.

The government must toughen regulations to levy heavier penalties for irregular derivatives trading and kick wrong-doers out of the market. The Seoul market should no longer serve as a playground for speculators.