SEOUL, Apr. 9 (Korea Bizwire) — South Korea’s financial regulator on Monday launched a special inspection into Samsung Securities Co. over the brokerage’s “fat-finger” trading chaos after it paid windfall stocks to its employees as dividends.
Under an employee stock ownership plan, Samsung Securities had been planning to pay cash dividends of 1,000 won (US$0.93) to its employees on Friday. However, the brokerage mistakenly paid them dividends in shares.
The chaos happened after a Samsung Securities trader made a keyboard entry mistake, typing “shares” instead of “won” in Korean when sending the dividends to employees.
Shares of Samsung Securities plunged in Friday morning trading as some employees unloaded the stocks.
Questions were also raised about whether employees could sell the mistakenly deposited shares, which do not exist, on the stock market and how they could sell the shares without reporting it to the brokerage.
In a statement, the Financial Supervisory Service (FSS) called the dividend chaos at Samsung Securities a “big financial incident that significantly undermines the safety of and trust in capital markets.”
The dividend error showed “grave moral hazard” and was a “serious problem” for the brokerage’s trading system, the FSS said.
The FSS will carry out the on-site inspection at Samsung Securities until April 19 and will closely look into the brokerage’s trading system.
It will also inspect whether the brokerage is taking measures to compensate ordinary investors who may have been affected by the mistake, the FSS said.
The dividend chaos at Samsung Securities also rekindled concerns that some brokerages could make naked short sales.
South Korea does not allow so-called “naked short selling,” in which investors unload shares that they do not own, but only permits investors to sell borrowed stocks. Short selling has been blamed for amplifying financial market jitters by sparking price falls.
Finance Minister Kim Dong-yeon told an MBC radio program that financial authorities will take measures against Samsung Securities over the transactions of “ghost stocks.”
Kim didn’t specify which measures will be taken against Samsung Securities but said such transactions “should not have been happened.”
Samsung Securities said it set up a team to deal with the dividend chaos and has received about 180 complaints from shareholders.