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Questions raised over Deutsche’s Korea trade

Was 3% fall triggered by prop or client trade?; concerns raised about programme trading.

fall in Kospi triggered by W1.6 trillion of sales by local Deutsche unit

fall in Kospi triggered by W1.6 trillion of sales by local Deutsche unit 

An investigation into a market plunge on the Korea Exchange in November has put Deutsche Securities under the spotlight and triggered changes to Korean derivatives market practice. Deutsche will probably find out by March what, if anything, it’s been found guilty of and what the outcome will be.

On November 11, the Seoul market fell steeply in the last half hour of trade on the back of heavy foreign selling, much of it in programme trading, and specifically an arbitrage trade on an expiry date for options. Deutsche’s local securities unit made W1.6 trillion ($1.4 billion) of sales, bringing the Kospi index down 2.7%.

A market fall of less than 3% is not the end of the world but it prompted a great deal more scrutiny than might otherwise have been the case, for two reasons. One, the market movement was bad enough to bring one Korean asset manager, Wise Asset Management, unstuck; it has since folded. And two, it happened just as Seoul was hosting the G20 meeting, where world leaders – and financial top brass including Deutsche’s own chief executive, Josef Ackermann – were gathering to discuss, among other things, greater financial stability.