SKorea: Deutsche Bank units behind market plunge

AP News
Posted: Feb 23, 2011 7:30 AM
SKorea: Deutsche Bank units behind market plunge

Deutsche Bank employees engaged in price manipulation and unfair trading that led to a sudden plunge in Seoul's benchmark stock index last year, South Korean financial regulators said Wednesday.

Authorities had been investigating two Asian units of Deutsche Bank AG over a 2.7 percent decline in the Korea Composite Stock Price Index during the final minutes of trading on Nov. 11.

In a joint statement, the Financial Services Commission and Financial Supervisory Service said they would ask South Korean prosecutors to investigate five employees of various Deutsche Bank units in Hong Kong, New York and Seoul over the findings. The names of the employees were not released.

The regulators also said that they would suspend some securities and exchange traded derivatives operations by Deutsche Securities Korea, the South Korean unit, for six months from April 1. The local unit was also to be referred to prosecutors.

The alleged manipulation was carried out with the "major involvement" of Deutsche Bank's Hong Kong unit, the statement said. The involvement of the German parent company, Deutsche Bank AG, was not confirmed, it said.

Deutsche Bank said in a statement that it was "disappointed" with the findings and expressed regret over the penalties imposed and the referral of its employees and South Korean unit to prosecutors. But it said it would continue to cooperate with South Korean authorities.

"Ultimately, we have full confidence in the Korean financial, regulatory and judicial systems," the statement said.

The plunge came on a so-called triple-witching day when stock options, stock index options and stock index futures all expire. The phenomenon, which occurs four times a year, can lead to heightened volatility in share prices.

The regulators said that the alleged manipulation and unfair trading were the result of speculative derivatives positions constructed in advance. The purported actions resulted in illegal profits of 44.9 billion won ($40 million), they said.

The decline came on a day that South Korea was in the international spotlight as a two-day Group of 20 summit meeting began in Seoul, the country's capital.

Coincidentally, Josef Ackermann, Deutsche Bank's chairman and CEO, was in Seoul to participate in a business forum held in conjunction with the summit.