Korean financial authority vows thorough investigation into CFD accounts

Kim Joo-hyun, chairman of the Financial Services Commission, answers the question raised by Representative Kang Byung-won of the Democratic Party at the plenary meeting of the National Assembly’s National Policy Committee on May 11. [Photo by Yonhap]

South Korea’s financial authority on Thursday vowed to look into the entire 3,400 contract for difference (CFD) accounts that have been abused by the alleged stock manipulating forces in relation to the stock market crash last month that stemmed from SG Securities Korea Co.

“We need to discuss with experts about the technical approach but we will look into each and every 3,400 CFD accounts,” said Kim Joo-hyun, chairman of the Financial Services Commission, in response to a question raised by Representative Kang Byung-won of the Democratic Party on the measures to improve the overall system to better monitor market manipulation.

The question was asked at the plenary meeting of the National Assembly’s National Policy Committee.

“There may be (similar market manipulation) transactions, so we plan to launch a themed investigation even if it means a contraction (in CFD accounts),” Kim said.

A CFD is an over-the-counter derivatives product that pays the differences in the settlement price between the open and closing trades by taking advantage of price fluctuations in the underlying asset without actually owning an investment product.

It can generate a leverage of up to 2.5 times with a 40 percent margin. Investors who suffered losses after investing in the offerings by Ra Deok-yeon, the head of an unregistered investment consulting firm, and his group, claim that they ended up in debts after losing the investment as CFD transactions were made in their name without their knowledge.

“It will (still) not be easy to identify the practice of stock manipulation with slight fluctuations over a long time when market volatility is so high,” Kim said.

Ra is suspected to have manipulated market prices for three years.

Kim, however, said that the FSC will make efforts for improvement by coordinating with experts and related institutions such as the Korea Exchange.

The government, in the meantime, had earlier eased the requirements for designating individual professional investors in November 2019.

“We are deciding how to deal with it as 95 percent of the investors are individual professional investors,” Kim said in response to the comments made by Representative Lee Yong-woo of the DP and others that the CFD system must be overhauled.

“We are thoroughly reviewing the application and approval procedures and requirements of individual professional investors,” Kim said.

He also said that the commission was “indirectly tipped off by the media” and that the Ministry of Justice and the prosecution were quick to respond as “(they) banned those suspected to be involved from leaving the country, requested a warrant, and conducted a search and seizure in less than two weeks of the tip-off.”