Dividends Debacle

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South Korea's financial authorities say that a computational problem at Samsung Securities caused the brokerage firm’s dividend payout debacle last week. Authorities have warned of stern punishment to prevent distrust from spreading to the entire stock market. Meanwhile, Samsung Securities' credibility has suffered a blow.

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No one at Samsung Securities managed to prevent 2.8 billion stocks from being accidentally issued to its employees, and there was no warning in its internal system. The problem surfaced one day later, prompting Samsung Securities to warn its employees three times not to sell the stocks. But some of the employees had already sold their shares, and it took 37 minutes to ban the transactions. Nothing had been done to prevent the trading chaos, and the brokerage did a poor job coping with it. Financial authorities convened a meeting with the heads of securities firms and told them to inspect their trading platforms and take measures to improve them. But the major institutional investors like the National Pension Service and the Government Employees Pension Service have announced their decision to halt stock transactions on their Samsung Securities accounts. The plunge in the value of Samsung Securities' shares following the chaos has incurred more than 35 billion won in losses to the National Pension Service. Samsung Securities has pledged to compensate its customers promptly, but restoring the market's trust will probably be a challenge.