September 14, 2024

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View of Yeouido financial district (Yonhap)

South Korean investors remain unable to promptly respond to changes in the US stock market, as local brokerage firms' suspension of daytime trading service is expected to continue.

Following the shutdown fiasco from the market meltdown earlier this month that led to the cancellation of orders worth 630 billion won ($471 million) in trades across 90,000 accounts here, 19 brokerage houses have temporarily suspended the daytime trading service of US shares from Aug. 16.

The securities firms collectively requested US overnight trading platform operator Blue Ocean Technologies to investigate the system failure and set up measures to prevent relapse.

While Blue Ocean Technologies announced on Aug. 19 that it had finished migrating to a new trading engine powered by Members Exchange, which is expected to boost capacity significantly, its Korean counterparts view that the system needs further verification to ensure stability.

“We need more proof that the new system is solid enough to ensure that another system failure will not happen,” said an official from the Korea Financial Investment Association, which represents local brokerage houses.

"Without knowing that the system has been fully improved, securities firms cannot resume the service," the official said. "We are communicating with Blue Ocean Technologies on this."

Under the prolonged halt, local investors cannot trade US stocks in their daytime between 10 a.m. to 6 p.m., unable to promptly respond to major market events such as the earnings report of US chip giant Nvidia, a much-favored stock for local investors.

While Nvid ia isto report its second-quarter earnings at 5 a.m. Thursday in Korean time, investors here cannot place orders through daytime trading. They would have to wait until 5 p.m. for US premarket trading to open.

Blue Ocean ATS is the sole overnight trading platform of the US stock market. All local brokerage houses that offer daytime trading for investors here provide the service in partnership with Blue Ocean Technologies.

Korea is a major market for Blue Ocean Technologies as well. While its CEO Brian Hyndman had said Korean investors account for around 40 percent of overnight trading in the US stock market in an interview with The Korea Herald in May, the figure has recently been raised to 60 percent, according to reports.

Meanwhile, entities involved in the massive cancellation are reluctant to accept blame.

According to the Korea Financial Investment Association, Blue Ocean Technologies apologized for the incident. Yet it stated that it is not responsible for compensation under US law.

It also said the US authorities, including the Securities and Exchange Commission and Financial Industry Regulatory Authority, are not holding it responsible for the incident.

In recent days, local brokerage firms, including Samsung Securities, NH Investment & Securities, KB Securities and Kiwoom Securities, have announced they are not liable for the damages, as the cancellation resulted from Blue Ocean ATS being unable to process surging orders and the investors were notified of volatility in trading overseas shares.

"The cancellation of orders and the suspension in the trading resumption resulted from a unilateral decision by an overseas exchange,” NH Investment & Securities told its investors.

“This is not a breach on the company's end, which means it does not qualify as a compensation subject.”

The Financial Supervisory Service, the top financial watchdog here, is to look into the incident after brokerage houses file a report on why they did not accept compensation requests from investors, local reports showed.

If the FSS refuses to mediate the conflicts, the investors could file a lawsuit against the brokerage houses.

By Im Eun-byel (silverstar@heraldcorp.com)