Financial Supervisory Service Urgently Summons Securities CEOs... President Hwang Hyun-soon Says "Coincidence, Unrelated"

Deputy Director Ham Yong-il Hosts Communication Meeting with CEOs of 35 Securities Firms on Market Issues
CFD Balances Surge 52% Compared to Last Year-End... Lending Balances Also Reach Record High
Hwang Hyun-soon, Kiwoom Securities President, "Chairman Kim Ik-rae's Share Sale Is a Coincidence"

On the morning of the 28th at 10 a.m., the Financial Supervisory Service (FSS) urgently convened the CEOs of securities firms to order the strengthening of risk management for Contracts for Difference (CFD), which was identified as the source of the recent mass limit-down incidents involving eight stocks.

On the 28th, the FSS held a 'Securities Industry Market Issues Communication Meeting' at the Financial Investment Association's main conference room in Yeouido, chaired by Ham Yong-il, Deputy Governor for Capital Markets and Accounting. The meeting emphasized strengthening risk management related to leveraged investments. Attendees included Deputy Governor Kim Jeong-tae of the Financial Investment Division, Seo Yoo-seok, Chairman of the Financial Investment Association, Cheon Seong-dae, Head of Securities and Futures Division, and representatives and executives from 35 domestic securities firms.

Hwang Hyun-soon, CEO of Kiwoom Securities, is attending the 'Financial Supervisory Service - Major Domestic Securities Firms CEO Issues Meeting' held at the Korea Financial Investment Association in Yeouido, Seoul on the 28th. Kiwoom Securities is under suspicion of being involved in the recent incident as Kim Ik-rae, chairman of Daou Kiwoom Group, sold Daou Data shares, a stock related to this week's market crash, just before the sharp decline. Photo by Yoon Dong-joo doso7@

The meeting discussed topics including ① stock market trends, ② risk management related to leveraged investments, ③ risk management of securities firms' real estate exposure, and ④ measures to enhance the effectiveness of internal controls within securities firms.

The domestic market has significantly outperformed major foreign indices, with credit lending and short-selling loan balances also increasing. As of the 26th, the credit loan balance stood at 20.1 trillion KRW, up 21.8% from 16.5 trillion KRW at the end of last year. Notably, the KOSDAQ credit loan balance surged to 10.4 trillion KRW. The loan balance totaled 79.3 trillion KRW, a 29.6% increase from 61.2 trillion KRW at the end of last year, reaching an all-time high. The CFD balance, which has recently become an issue, was 3.5 trillion KRW as of the end of February, up 1.2 trillion KRW (52.2%) from the end of last year.

Deputy Governor Ham urged caution in investor protection and risk management related to leveraged investments. Specifically, he requested that securities firms refrain as much as possible from operating CFD customer acquisition events such as lowering fees or providing cash upon registration as individual professional investors. He also asked securities firms to actively work to prevent risk spread by differentiating risk management according to the risk level of CFD underlying assets. The FSS expressed concerns that excessive leveraged investments related to CFDs could act as a factor causing market instability, such as increased market volatility during forced liquidation.

To manage real estate exposure risk, the FSS also urged sufficient provisioning for bad debts and strengthening of internal loss absorption capacity. The FSS and the industry agreed on the need to prepare contingency plans to prevent problems even under conservative scenarios. While the securities industry agreed on the basic direction of strengthening real estate exposure risk management, it also suggested that considerations for a smooth transition of the industry are necessary when implementing institutional improvements such as the Net Capital Ratio (NCR).

The FSS announced plans to take preventive measures to strengthen internal controls. Regarding last year's difficulties in responding to redemption requests for wrap accounts and specific money trusts due to mismatches in short- and long-term fund operations, the FSS conveyed plans to inspect the establishment and operation status of internal control standards related to wrap accounts and specific money trusts, as well as any occurrence of illegal activities.

An FSS official stated, "When major capital market issues arise, we will maintain close and frequent communication with the securities industry and actively cooperate to seek response measures."

Meanwhile, Hwang Hyun-soon, CEO of Kiwoom Securities, also attracted attention by attending the meeting. Amid the stock market crash involving eight stocks triggered by sell orders through Soci?t? G?n?rale (SG) Securities, suspicions have arisen that Kim Ik-rae, Chairman of Daou Kiwoom Group, sold his Daou Data shares just before the crash. Financial authorities have already launched an investigation into Chairman Kim. According to the FSS electronic disclosure system, on the 20th, Kim sold 1.4 million shares of Daou Data through off-hours trading at 43,245 KRW per share, securing approximately 60.5 billion KRW. His Daou Data stake decreased from 26.66% to 23.01%, a drop of 3.65 percentage points. However, two trading days after Kim's sale, on the 24th, the SG Securities-triggered crash began, and Daou Data shares hit the daily limit down for two consecutive days, falling 19% and 4% on the 26th and 27th, respectively. On the 27th, Daou Data's stock price was 16,490 KRW, a 62% plunge from the price at which Kim sold.

Daou Data's stock price steadily rose from around 10,000 KRW in July last year to the 30,000 KRW range earlier this year, reaching the 50,000 KRW range in February. Chairman Kim made a large sale at the significantly increased price within six months, and the subsequent massive crash has led to suspicions in the securities industry of connections to stock price manipulation groups. However, the Daou Kiwoom Group stated that "Chairman Kim's share sale and this incident are completely unrelated." They explained that the sale was due to gift tax incurred when Kim gifted shares to his children in 2021, and the sale was to pay the tax. The sale coincidentally occurred just before the SG Securities-triggered crash.

Even before the meeting began, media attention was focused on CEO Hwang. Regarding suspicions of Chairman Kim's involvement, Hwang said, "It is a (sale timing) coincidence." He then asked rhetorically, "If it is not a coincidence, then what else could it be?"

This content was produced with the assistance of AI translation services.