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 month.
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)