SEOUL Jan 15 South Korea's financial regulator
said on Wednesday that it plans to impose price band limits on
futures and options trading after a local brokerage suffered
crippling losses on erroneously placed options transactions last
Unlisted Hanmag Securities' capital was wiped out after the
brokerage erroneously placed a series of transactions on KOSPI
200 options in December, putting it in serious jeopardy.
Although Hanmag is a small brokerage and the orders did not have
serious consequences for the broader market, the regulator is
seeking to prevent similar incidents from recurring.
Seo Tae-jong, director general at the Financial Services
Commission, said the regulator is considering a price band limit
of between 0.5 percent and 1 percent above and below the latest
trade price for futures contracts during market hours.
For options contracts, Seo said a price band limit of
between 1 percent and 2 percent of the latest trade price is
being considered. The regulator will decide on the details
sometime in the first half of this year, Seo said.
Typically with price band limits, any order that falls
outside the band would be rejected, reducing the risk of sudden
disorderly price swings as a safeguard for the market.
The commission said it also plans to give the Korea Exchange
the authority to cancel orders if such an action is necessary
for market stability, such as when a market participant will
likely fail to deliver on a large number of transactions.
Separately, the commission said Hanmag's operations would be
suspended for six months because of its weak financial
conditions. It asked the brokerage to submit a plan to improve
its fiscal standing by March 15, which the regulator will review
and determine whether the brokerage is fit to resume operations.
(Reporting by Se Young Lee; Editing by Chris Gallagher)