Financial Supervisory Service, Inspection of Mirae Asset and NH for 'Bond Rollover' Practices

Plans to Investigate Bicycle Trading and Unfair Business Practices

The Financial Supervisory Service (FSS) will conduct on-site inspections targeting Mirae Asset Securities and NH Securities for 'bond rollover' practices.

According to the financial sector on the 14th, the FSS, having completed its inspection hiatus from the end of last month to early this month, will begin on-site inspections of the two companies starting on the 16th. Inspectors will visit each company's building to check the operational status of bond-type wrap accounts and specific money trusts (trusts), which are discretionary asset management products. Following its announcement in early February to inspect for unsound business practices and risk factors, the FSS conducted intensive inspections targeting KB Securities, Hana Securities, and others, and will now proceed with additional on-site inspections.

The FSS plans to focus on unsound business practices common in the bond market, such as self-dealing transactions and parking transactions. Self-dealing transactions involve asset managers using two or more internal accounts to conduct trades, inflating trading volumes. Parking transactions are trades where the fund manager buys or sells without recording them in the books.

Lee Bok-hyun, Governor of the Financial Supervisory Service [Photo by Yonhap News]

The FSS believes that securities firms are engaging in bond rollovers through a 'maturity mismatch' strategy, investing short-term investment products like wrap and trust account maintenance funds into long-term bonds. There are suspicions that some securities firms violated laws by compensating investment losses when bond-type wrap and trust customers requested large-scale redemptions. Last month, the FSS announced the status of inspections on securities firms' wrap and trust operations, revealing that some firms are employing maturity mismatching strategies by including long-term corporate commercial papers (CPs) with low trading volumes.

Meritz Securities will also undergo spot inspections. The FSS plans to examine Meritz Securities' operational status regarding convertible bonds (CBs) and bonds with warrants (BWs).

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