Halt to daytime trading of US stocks leaves investors in limbo

Korean investors complain about limited access ahead of Nvidia's earnings report this week

View of Yeouido financial district (Yonhap)

South Korean investors remain unable to promptly respond to changes in the US stock market, as local brokerage firms' suspension of their trading service during the Korean daytime is expected to continue.

Following the shutdown fiasco from the market meltdown earlier this month that led to the cancellation of orders worth 630 billion won ($471 million) in trades here, 19 brokerage houses have temporarily suspended the daytime trading service of US shares from Aug. 16.

Blue Ocean ATS is the sole overnight trading platform of the US stock market. All local brokerage houses that offer trading during the Korean daytime provide the service in partnership with its operator Blue Ocean Technologies.

The securities firms collectively requested US overnight trading platform operator Blue Ocean Technologies to investigate the system failure and set up measures to prevent relapse.

While Blue Ocean Technologies announced on Aug. 19 that it had finished migrating to a new trading engine powered by Members Exchange, which is expected to boost capacity significantly, its Korean counterparts view that the system needs further verification to ensure stability.

“We need more proof that the new system is solid enough to ensure that another system failure will not happen,” said an official from the Korea Financial Investment Association, which represents local brokerage houses.

"Without knowing that the system has been fully improved, securities firms cannot resume the service," the official said. "We are communicating with Blue Ocean Technologies on this."

The local industry views the platform operator would be pressured by the suspension, considering Korean investors take up roughly half of total trading volume for Blue Ocean ATS.

Yet, under the prolonged halt, local investors cannot trade US stocks during daytime hours here, unable to promptly respond to events that happen after the day's close, such as the earnings report of US chip giant Nvidia, a much-favored stock for local investors.

Nvidia is set to report its second-quarter earnings at 5 a.m. Thursday in Korean time, after trading closes in the US. That means investors here cannot place orders until 5 p.m., when US premarket trading opens.

Though some investors claimed losses from being unable to respond to the massive market sell-off on Aug. 5 due to the shutdown, entities involved in the outage crisis are reluctant to accept blame.

According to the Korea Financial Investment Association, Blue Ocean Technologies stated that it is not responsible for compensation under US law.

It also said the US authorities, including the Securities and Exchange Commission and Financial Industry Regulatory Authority, are not holding it responsible for the incident.

“Requesting compensation from Blue Ocean Technologies is not on the table for the time being,” the official from the association said.

Local brokerage firms are also unwilling to step up. In recent days, major brokerage houses, including Samsung Securities, NH Investment & Securities, KB Securities and Kiwoom Securities, have announced they are not liable for the damages.

The firms claimed they were not responsible as the cancellations resulted from Blue Ocean ATS being unable to process surging orders and the investors were notified of risks in trading overseas shares.

"The cancellation of orders and the suspension in the trading resumption resulted from a unilateral decision by an overseas exchange,” NH Investment & Securities told its investors.

“This is not a breach on the company's end, which means it does not qualify as a compensation subject.”

The Financial Supervisory Service, the top financial watchdog here, is to look into the incident after brokerage houses filed a report on why they did not accept compensation requests from investors, local reports showed.

If the FSS refuses to mediate the conflicts, the investors could file a lawsuit against the brokerage houses.

By Im Eun-byel(silverstar@heraldcorp.com)