[Inside Chodong] 630 Billion Won in Canceled Trades: No One Takes Responsibility

Aftermath of the Market Crash on the 5th:
U.S. Daytime Trading Halted
Domestic Securities Firms Providing the Service Claim "No Compensation Responsibility"
Only Investors Who Suffered Losses from the Trading Suspension Are Left in Tears

On the 5th, global stock markets plummeted, recreating a 'Black Monday.' The KOSPI fell more than 8% that day, marking one of the largest drops in history. The KOSPI's market capitalization evaporated by 192 trillion won in just one day. Fortunately, the market quickly recovered afterward and now appears to have fully shaken off the shock of the crash. However, some areas have yet to recover from that day's impact. One such area is the U.S. stock daytime trading service, which has been suspended since the crash.

Amid the market plunge on the 5th, domestic investors rushed to sell, prompting the U.S. alternative trading system (ATS) Blue Ocean to unilaterally cancel all execution orders from 2:45 p.m. As orders were canceled, all profits and losses generated from daytime trading stock transactions were also erased. Even after daytime trading ended and the regular market began, some securities firms were unable to conduct regular trading properly due to the lingering effects of the canceled orders. Investors who could not trade in time amid heightened volatility suffered losses. According to the Financial Supervisory Service, this incident resulted in canceled trades amounting to 630 billion won (approximately 90,000 accounts) across 19 domestic securities firms. Considering the possibility of recurrence, securities firms have temporarily suspended daytime trading since the 16th.

The daytime trading service, which allows trading of U.S. stocks during Korean daytime hours, was introduced when Samsung Securities partnered with Blue Ocean in February 2022. Blue Ocean is the only ATS approved by U.S. authorities to support nighttime trading. When the exclusive partnership between Samsung Securities and Blue Ocean expired last year, most domestic securities firms partnered with Blue Ocean and entered the daytime trading market. Currently, 19 securities firms provide this service.

The root cause of this incident was a system error on Blue Ocean's side, unable to handle the increased trading volume amid volatile market conditions. However, Blue Ocean stated in a response to the Korea Financial Investment Association that it reported the incident to the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), but no sanctions were imposed, and therefore it holds no responsibility for compensation.

Domestic securities firms also claim no responsibility for compensation. Some firms informed investors who filed complaints related to this incident that compensation is difficult. They argue that trading risks were already disclosed in advance and that the disruption caused by overseas exchange issues does not qualify for compensation under the terms and conditions. Securities firms cited the exemption clause in the standard terms and conditions for foreign securities trading accounts, which stipulates that they are not liable for customer losses caused by delays or inability to execute trades due to force majeure events such as natural disasters, war, or similar unavoidable circumstances.

Although a service suspension occurred and investors suffered losses, the two parties providing the service claim they cannot be held responsible. Only the innocent investors are left frustrated.

As the term 'Seohak Gaemi' (overseas Korean retail investors) has emerged, domestic investors' overseas investments continue to increase. According to the Korea Securities Depository, in the first half of this year, domestic investors' foreign stock settlement amount reached $205.84 billion (approximately 280 trillion won), a more than 45% increase compared to the same period last year. About 96% of the foreign stock settlement amount was U.S. stocks. The amount of foreign securities held by domestic investors is at an all-time high. This increase in overseas investment by domestic investors has led to higher commission revenues for securities firms. In the first half of the year, domestic securities firms' foreign securities custody fee income was about 560 billion won, more than a 50% increase compared to the same period last year.

Securities firms have been competing to attract investors by offering various benefits and services targeting the growing number of overseas investors. However, when an incident occurred, they turned a blind eye.

Since investors trusted domestic securities firms to conduct their trades, these firms must take a more responsible stance and make every effort to resolve this incident. Furthermore, thorough measures must be taken to prevent such trading suspensions from recurring.

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