South Korea's Financial Supervisory Service will conduct fact-checking inspections at Eugene Investment & Securities Co. Ltd. and Korea Securities Depository following erroneous trading of shares through a retail investor's account at the brokerage.
The regulator said Aug. 9 that it will conduct the inspections between Aug. 10 and Aug 17.
The regulator's announcement came after a retail investor was able to sell shares of ProShares UltraShort Dow30 (DXD), a U.S. inverse exchange-traded fund, in May before his brokerage account was updated to reflect the ETF's reverse stock split, The Chosun Ilbo reported Aug. 9. ProShares UltraShort Dow30's 1-for-4 reverse split took effect May 24.
The retail investor held 665 shares of ProShares UltraShort Dow30 in an account at the brokerage prior to the reverse stock split. The brokerage failed to update the investor's holdings in the account even after the reverse stock split became effective. As a result, the investor was able to sell 665 shares of ProShares UltraShort Dow30, according to the publication.
Foreign stock splits and reverse splits are relayed to South Korean brokerages through Korea Securities Depository, and customer accounts for foreign stock holdings are updated accordingly. Large brokerages use a computerized process for real-time updates but smaller brokerages still rely on manual updates, The Chosun Ilbo said.
Eugene Investment & Securities did not discover the error until an order to sell 665 ProShares UltraShort Dow30 shares was placed. The company bought 499 shares in a counter transaction and then sought reimbursement of 17 million won from the investor.
The investor refused to reimburse the amount and filed a complaint with the FSS.
As of Aug. 9, US$1 was equivalent to 1,119.33 South Korean won.