Merrill Lynch faces sanctions for extreme scalping role in Korea

2019.06.18 16:02:12

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U.S. brokerage Bank of America Merrill Lynch is facing possible disciplinary action from South Korea’s stock exchange authority for its alleged role in market-disrupting high-frequency trading on behalf of U.S. Citadel Securities.

Korea Exchange, the country’s stock exchange operator, said on Tuesday that it will convene a market monitoring committee on Wednesday to determine the level of punishment against Merrill Lynch. The action may include warnings, stern warnings and financial penalties.

Merrill Lynch could be the first large financial institution to receive financial penalties for disrupting the stock market due to its role related to extreme scalping in Korea.

In 2014, New York-based high-frequency trading firm Tower Research Capital was referred to the prosecution in Korea for stock price rigging and unfair transactions through extreme scalping in the market of Kospi 200 futures contracts. The prosecution delayed indictment in the case as it failed to specify a suspect or suspects in the U.S., while investigations are underway into the case by the U.S. Commodity Futures Trading Commission.

High‐frequency trading firms use high-speed communication lines and high-performance computers to make tens of millions of trades a day on a large basket of stocks and they scalp for a penny profit on each trade. Citadel Securities have allegedly gained a significant amount of profit by using programmed scalping tactics on the Kosdaq market. Details on its transactions techniques were not disclosed. Market watchers say that the brokerage might place large buy orders at an asking price slightly higher than the market price to attract other investors before selling its hold and instantly cancelling the orders when prices go up.

By Yoo Joon-ho and Lee Eun-joo

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