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campbell 04-11-2018 04:56 PM

Operational Risk: Units - Shares v Currency


Samsung Sec 'fat finger' debacle deepens as pension fund halts trade

SEOUL (Reuters) - Samsung Securities Co Ltd's <016360.KS> woes deepened on Tuesday as South Korea's biggest pension fund stopped using the broker to trade stocks in the wake of a 'fat finger' error that has prompted a huge public outcry and calls for change in the industry.

Anger over the accidental issuance of 2.8 billion shares to employees - more than 30 times the number of its outstanding shares and theoretically worth some $100 billion, has only gained momentum after it was discovered that 16 workers quickly sold off shares.

Authorities have launched an investigation into Samsung Securities, the country's fourth biggest broker by market value, as well as into the stock trading across the sector.

"Samsung should quickly recognize this situation as a crisis. This is not just a problem of 16 employees, it is a company and industry wide issue," said Kim Tae-gi, an economics professor at Dankook University.

The company issued the shares in error on Friday when it was supposed to pay dividends worth 2.8 billion won to employees under a stock ownership plan, with a worker entering 'shares' instead of 'won' into a computer.

It took the firm 37 minutes to realize the error and halt trading by its employees. During that time, some employees sold off the stocks mistakenly given, ignoring warnings from the company, the Financial Supervisory Service said.

Since then, Samsung Securities stock has lost 10 percent, wiping about $330 million from its market value.

An official with the National Pension Service, the world's third-biggest pension fund, declined to disclose the volume of the fund's stock trading done through Samsung. It had 136 trillion won ($127 billion) of its assets invested in the local stock market as of January.

The fund will continue to outsource fund management to Samsung until regulators announce results of the ongoing investigation, the official added.

Financial Supervisory Service Governor Kim Ki-sik urged domestic brokerages on Tuesday to strengthen their internal control systems and work to rebuild investor trust, saying the error was a massive shock but also an opportunity to build a solid trading environment.

Over the last three days, more than a 200,000 people have signed a petition on the presidential Blue House's website, calling for employees who sold off the shares to be severely punished.

So I checked on the South Korean won vs. U.S. dollar:

1 KRW = 0.000937 USD

and also what the share prices have been:

35,450.00KRW = 33.22USD

So, that's quite the order of magnitude error.

campbell 04-11-2018 05:16 PM



I used to work at an investment bank, and part of my compensation was paid in shares of my bank, and a popular rule of thumb among low-level drones like me was that you sold your shares as soon as they were delivered. Senior partners might be doing wild stuff like buying more stock, or selling puts, or whatever, but they were rich. For the rest of us, our careers were already so leveraged to the health of our bank that it seemed silly to hold any more shares than we had to. So every year some of my stock compensation would become unrestricted, and I'd sell it that day.

But I don't recall ever having selling reflexes quite as catlike as this:

A Samsung Securities employee caused the firm to pay out a massive dividend in the form of its own shares to 2,018 employees who were members of a company stock-ownership scheme.

The dividend was supposed to be 1,000 won ($0.94) per share. But the employee mistook the form of measurement, confusing won and shares. The error caused Samsung Securities to issue a dividend that was 1,000 times the value of each share held by the group of employees. ...

Sixteen staff members sold a collective five million shares worth about $186.9 million minutes shortly after receiving them. It took the brokerage 37 minutes to completely block employees from selling the accidental shares, according to South Korea’s Financial Supervisory Services, a financial watchdog.

Some of those employees -- ones who "sold stock despite receiving warnings from the company not to do so" -- have been suspended, and the transactions seem to have been reversed. But really those 16 Samsung Securities employees should be among the great folk heroes of finance. Imagine coming to work one day; expecting a nice, you know, extra $500 of company stock; checking your account the moment the stock is supposed to hit; finding an extra $19 million instead (Samsung Securities shares traded in the neighborhood of 38,000 won at the time, so paying 1,000 shares rather than 1,000 won was a 38,000-fold increase); carefully pondering the likelihood that you were supposed to get a $19 million bonus and the ethical and career implications of cashing it in; and then cooly putting in a sell order and blasting out the entire windfall -- all in the 37 minutes before your employer noticed the problem. That is the sort of careful attention to detail, decisive action, coolness under pressure, sense of humor and ethical flexibility that you want in a stock trader. If Samsung doesn't appreciate these people, I am sure someone else will.

campbell 04-11-2018 05:30 PM


South Korea’s NPS Ends Samsung Trading After “Fat Finger” Folly
Samsung investigating internal systems and controls, promises to compensate investors.
After a “fat finger” error last week, South Korea’s largest pension fund is severing ties with Samsung Securities.

The incident occurred Friday, when a Samsung employee accidentally issued 2.8 billion shares to employees instead of the dividend payouts promised to workers part of the stock ownership scheme. However, the situation did not become apparent until 37 minutes later, when the company discovered that 16 employees had hastily sold off their erroneous stock, valued at $186.9 million.

While last Friday may have been a great day to be a Samsung employee, Samsung Securities has fallen 10% and lost roughly $330 million from its market value. The titanic mistake was also the straw that broke the camel’s back for the 633 trillion won ($595 billion) National Pension Service, as the world’s fourth-largest pension fund stopped orders with the Seoul-based fintech company almost immediately. A spokesman told The Wall Street Journal that “concerns of poor safety measures following the financial incident” was the key reason it stopped orders with the company.

Worth nearly $105 billion, the mistaken 2.8 billion shares represented more than 30 times the number of Samsung’s outstanding shares. Samsung Securities has launched an investigation into its internal systems and controls and has also promised to compensate investors for the dividend debacle. According to the WSJ, the Korea Securities Depository said the perilous transactions involving the Samsung shares had been fixed.

The Samsung employee who made the mistake, as well as those who cashed in after being told not to, have been temporarily suspended.

IANAE 04-15-2018 07:42 PM

Op Risk happens and that an error occurred is not entirely surprising or disappointing.

The magnitude of the "error", however, and that it didn't trigger controls within the company's internal or market facing systems, or market-side systems, is astounding.

The_Polymath 04-15-2018 08:21 PM

I'm curious as to how the law works in SK

If you profit from such an error in the US, then the onus of the payout is on the company who made the error. Tough luck as they say. You can't simply roll it back. If you tried, you would end up getting sued.

IANAE 05-24-2018 11:30 AM

Another 'units' error highlighting ops risk exposure and control deficiencies.

Another Deutsche Bank Blunder Revealed: $30 Billion 2014 Gaffe reports the recent disclosure of $30B error in 2014 in addition to a $35B error in March 2018.


The 2018 error was caused by the input of euros instead of yen, Sewing told shareholders in Frankfurt on Thursday. The bank has “significantly improved controls” for large-volume payments to ensure such an error doesn’t happen again.

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