Financial Supervisory Service Uncovers Numerous Issues in Securities Firms Handling CFDs... Suspicion of Executive Breach of Duty Detected

Regarding the sharp stock price plunge triggered by SG Securities, the Financial Supervisory Service (FSS) announced on the 25th that it has identified issues during its inspection of securities firms handling Contracts for Difference (CFD) and will take strict measures.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is speaking at a joint discussion forum of related organizations to eradicate unfair trading held at the Korea Exchange in Yeouido, Seoul on the 23rd. Photo by Hyunmin Kim kimhyun81@

The FSS explained that since commencing an inspection of Kiwoom Securities on the 3rd, it has expanded the inspection to other securities firms handling CFDs, such as Kyobo Securities, and plans to extend the inspection period to conclude by the end of next month.

During the inspection of securities firms handling CFDs, the FSS found that some firms omitted identity verification procedures when opening non-face-to-face CFD accounts. Additionally, some cases were confirmed where the key explanatory documents provided to investors understated the investment risks. There were also instances where CFD product advertisements provided misleading information about the product details.

In particular, regarding Company A, a CFD executive was found to have engaged in breach of trust by instructing that marketing fees, which should have been paid by a foreign securities firm involved in back-to-back transactions, be remitted to a domestic CFD trading system development company.

The FSS also confirmed cases where the foreign securities firm paid large commissions to the CFD trading system development company, is currently investigating the payment details, and has provided reference materials to the prosecution.

Furthermore, during the review of trading details for eight stocks that experienced sharp price drops due to the SG Securities incident, the FSS uncovered that Mr. C, related to an executive of Company B, sold large quantities of some stocks prior to the price plunge. The FSS judged that further investigation is needed for insider trading allegations and has submitted reference materials to the prosecution.

The FSS plans to promptly conclude the ongoing inspections of securities firms and expand the scope of inspections if deemed necessary.

An FSS official stated, "So far, unusual cases related to commission payments, issues in non-face-to-face account openings, and investment risk disclosures have been identified. We will take strict action on confirmed violations and promptly notify the prosecution of matters requiring investigation."

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