Another Error Trade, but no KRX relief

http://www.econovill.com/news/articleView.html?idxno=220320

September 15, 2014

Right after KRX releases its new reformed error relief system, there was an error trade on KOSPI200 Call Strike 230 for October during closing auction. Despite KRX new real time price band that was implemented in Sept 1, it is disabled during opening and closing auction (8:00-9:00 KST; 15:05-15:15).

302 lots of 201JA230 got filled at 66.80 in the closing auction. Before the closing auction, only 2 lots got filled throughout the day and the price was 30.00 and 31.05 each.

KRX has rejected to bust this trade as some of conditions are disqualified for the bust rule. So, the only way they can try is finding counter parties and negotiate with them. With simple calculation, it may cause USD4-5M of loss.

It has now been known to be an Israel client of Hyundai Securities. Currently the client has defaulted and the position is still in the market. Hyundai Securities for now paid on behalf but will inevitably sue the client, perhaps once the position is settled more details will emerge.

It is unfortunate because KRX just came out with their new error trade rules for September 1, but the trade did not qualify due to the amount.  (Minimum is around USD 10MIL, and will be an adjustment of price-not a bust cancellation)

Hyundai Futures and Zomojo?!

http://www.ajunews.com/view/20140708154432443

So although it has been known to the market, this news article is pretty detailed.

A brief summary, Hyundai Futures was accused of receiving KRW 200Mil each month (Approx USD 200k) from Australian firm Zomojo to have naked direct access (=full ownership/control to the client, none to the broker) to the KRX to trade ETD products. Whichever KRX firm who cried wolf (rumor has it: one of the affected firms this year from the big chaotic options event), stated that it gave this trading firm an advantage over retail firms and is considered unfair trading.

Hyundai Futures claimed they don’t even have an account opened by Zomojo nor own a FEP serviced by them, and KRX/FSS somewhat backed their claims saying that with the new DMA regulations, there are/should be no cases as these, however even if they are to have brokerage audits, it would take a lot to figure out whether the KRX members are bending the rules.

Currently, there are 1200 accounts opened by foreign investors in F&O since March 2014.

Zomojo is one of the old players in the KOSPI market and has been known to promote/sell their FEP software to other brokers. It is not known which Korean brokers actually use their services. They were also involved with a lawsuit against Zeptonics, which can be read here:

http://www.brw.com.au/p/business/happening_zomojo_plans_again_clean_YmCYAggdUtVLv8vtkjRIEM