Korea Exchange (KRX) has decided to impose a 175 million won (US$148,495) fine on Bank of America Merrill Lynch's South Korean unit for violating its trading rules. Merrill Lynch’s Seoul branch reportedly served as a trading channel for U.S.-based Citadel Securities and has been suspected of disrupting the market through high-frequency algorithm trading on the KOSDAQ market.
KRX announced on June 16 that it has decided to apply sanctions against Merrill Lynch based on an investigation into the U.S. firm last year and deliberation of the Market Oversight Commission and the Regulation Committee. The investigation showed the securities firm engaged in 6,220 cases of high-frequency trading for 430 companies on behalf of Citadel Securities from October 2017 to May 2018. The deals were worth 84.70 billion won (US$71.87 million) for 9 million shares.
Merrill Lynch made a false number of buy orders at a high price to attract other investors and then canceled the large-scale orders after it obtained margins by selling its holdings when the market price went up. In particular, Citadel Securities placed a large-scale false number of orders in a short period of time based on a pre-set computer algorithm through Merrill Lynch. Merrill Lynch recognized Citadel Securities’ violations through its own monitoring system in October 2017 but it failed to perform its duty of care as a member company of the exchange, according to KRX. The exchange also said that it applies the same market monitoring provisions to algorithm trading as well.
In addition, KRX said that Citadel Securities is also suspected of having violated the Capital Market Act by manipulating market prices of some shares. It notified the Financial Services Commission of the results of its investigation on June 18. Market watchers expect that the financial regulator will impose stricter regulations on trading using algorithm.