Critical breach of trust

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Critical breach of trust

The shocking blunder at a major local securities company on Friday raises loud alarm bells in the industry. While electronically transferring dividends to Samsung Securities employees who owned shares of their own company, a trader happened to mistype crucial information. Instead of making wire transfers of 1,000 won ($0.94) in dividends for each share of the company owned by an employee, the trader ordered 1,000 shares for each share owned by the employee.

As a result, 2.8 billion shares of Samsung Securities worth 112.6 trillion won were sent to the company’s employees at around 9:30 a.m. Friday. The figure amounted to 31 times the number of shares of Samsung Securities actually issued and traded in the market.
The problem is a critical lack of systems to discover such mistakes in the computerized transaction system.

A bigger problem is shocking moral hazard exposed among employees of Samsung Securities. It turned out that 16 of them, including senior members and analysts, rushed to sell their unexpected gifts within minutes of the mistake. They sold some 5 million shares, worth about 200 billion won at the time. That constitutes a grave criminal act beyond the realm of moral hazard.

Humans can make mistakes. That’s why such jargon as a “fat-finger error” is used in the stock market. A fat-finger error is caused by an individual who presses a wrong button on a keyboard when trying to process data. Little mistakes can cause big trouble. A company had to close down in 2013 after incurring 46.2 billion won in losses due to a simple typo in an order.

On Monday, Samsung Securities’ CEO Koo Sung-hoon admitted the company’s mistake and made a public apology. “That’s something that should not take place in the financial community which heavily relies on honesty and trust,” he said. He also vowed to hold accountable any employees who sold their unearned shares.

But broken trust can not be recovered through mere pledges by a CEO. As Koo said, what should not have happened took place in his company. Despite the huge mistake, no alarms rang at Samsung Securities, the Korea Exchange or the Financial Supervisory Service. If Samsung Securities fails to fix the cracks in its system, it could be a target of criminals. At the same time, our financial authorities must punish those responsible for the unprecedented financial blunder and prepare measures to prevent such a disaster in the future.

JoongAng Ilbo, April 10, Page 30
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