Korea weighs possible Deutsche Bank sanctions

South Korea’s Financial Services Commission has told Deutsche Bank it is considering possible sanctions against the bank’s units over the stock market’s sharp fall last November, an FSC official said yesterday.

The FSC notified Deutsche Bank so that it can prepare to defend itself, Dow Jones Newswires quoted the official as saying. Deutsche Bank declined to comment.

Financial authorities have been investigating whether the bank’s Hong Kong unit and its local securities unit engaged in market manipulation or unfair transactions on November 1, an options expiry day.

The benchmark KOSPI index fell 48 points in the last 10 minutes of trading that day due to arbitrage trading between the spot and futures markets.

During that time some $2.16 billion in sell orders from foreign investors were processed, most of them through Deutsche Bank’s local securities unit.

In response to local media reports that a penalty has been decided, the FSC and the watchdog Financial Supervisory Service said in a joint statement that no decision has been made on possible sanctions.

FSS governor Kim Jong-chang said Tuesday that financial authorities aim to decide by the end of this month on whether to sanction the units.

The FSS sent a team of officials to Deutsche’s Hong Kong unit in December as part of the probe.

Local authorities last month announced new rules designed to reduce the risk of sharp stock market volatility triggered by derivatives trading.

Seoul, in common with other developing markets, has grown increasingly concerned at potential risks posed by rapid foreign capital flows.