Brokerage on the brink after big trading blunderA small brokerage firm is likely to go bankrupt after failing to patch up an honest mistake it made Thursday morning. It would mark the first time a securities firm closed because of an ordering error.
Korea Exchange (KRX), the nation’s sole securities exchange operator, said yesterday it has supplied 57 billion won ($54 million) of the 60 billion won payment Hanmag Securities owes on a order blunder involving option transactions.
The brokerage firm failed to correct the mistake before the 4 p.m. deadline. If it fails to repay the 57 billion won that Korea Exchange has supplied, it undoubtedly will go bankrupt.
The brokerage firm reportedly suffered a loss of more that 46 billion won on Thursday morning, two minutes after the Kospi 200 Options opened at 9 a.m.
While setting up an automated transaction program, an error occurred and swapped sales and purchase orders on 36,000 transactions of 24 call options and 18 put options. Either the orders were made on a price much lower than the market value or were extremely high.
The automated transactions were made with 46 companies, most of which are known to be overseas investors.
The transactions could only be canceled if the overseas investors voluntarily agree.
Earlier in the day, KRX suspended all Hanmag transactions, including securities exchanges. The market is considering the recent mistake as a bankruptcy as Hanmag’s equity capital is slightly below 20 billion won.
According to the market, Hanmag Securities is known for concentrating on risky futures and options transactions.
The company started as a futures trading unit of Jinro Group in 1991. It changed to its current name in 2009 and expanded its business from futures and options transactions to include securities.
Yet its main business remained in futures and options.
The brokerage firm headquartered in Yeouido, Seoul, has roughly 150 employees. As of end of October, its equity capital stood at 19.8 billion won. The brokerage’s total assets are 140 billion won with 120 billion won in debt. Customer deposits total roughly 38 billion won.
No damages are expected to directly inflict on the brokerage’s customers as the blunder involved investing its own equity capital.
BY LEE HO-JEONG [firstname.lastname@example.org]