The National Pension Service ceased trading with Samsung Securities in the wake of the latest dividend error that revealed a blind spot in the brokerage system, officials said Tuesday.

“Due to the serious problem in Samsung Securities’ stock trading stability, we stopped all direct stock trading on Monday,” said an official of the pension service.

“Restrictions in other sectors such as trust management will be decided later in consideration of the financial authorities’ inspection result.”

It is unusual for the NPS to eliminate a trading brokerage in the middle of the year when it is not time for its semiannual assessment, according to officials.

Other pension funds such as the Korea Teachers Pension, the Korean Teachers' Credit Union and the Military Mutual Aid Association followed suit.

Pressing further on the feud-ridden brokerage was the tough response from financial authorities.

“This case revealed a serious problem in internal (stock trading) systems, the kind that cannot be regarded as a mistake of a single individual,” Financial Supervisory Service Gov. Kim Ki-sik said Tuesday in a meeting with local brokerage chiefs.

“It took 37 minutes from dividend issuance to trading suspension, which means that there was no safety net against such situation.”

The emergency meeting was summoned in the wake of the latest dividend error at the brokerage affiliated with the nation’s largest conglomerate Samsung Group.
 

Last Friday, the company mistakenly issued its employees 2.8 billion non-existent shares worth some 110 trillion won ($103 billion) in total, instead of paying them cash dividends worth 2.8 billion won under its stock ownership plan.

Amid the chaos, 16 employees immediately sold a combined 5 million shares, earning about 200 billion won and causing the company’s shares to drop by 11 percent in maximum.

“This is an unprecedented case and unless the system is fundamentally improved, other similar problems could occur in the future,” Kim said, pointing out to the system structure that simultaneously includes cash dividend payment and brokerage services.

“As soon as we complete the investigation on Samsung Securities, we will carry out an inspection on the securities industry in general.”

The FSS chief, however, remained prudent on the matter of prohibiting short selling altogether, claiming that it should be differentiated from the trading of non-existent stocks.

“To approach this problem in a short-selling perspective may obscure the seriousness and core of the issue,” Kim said.

The financial chief urged the company for tangible countermeasures, without expanding the case into litigation.

“As Samsung Securities’ fault is obvious here, (I) have instructed the company to establish a damage compensation plan for victims,” he said.

While the company comes up with a relief plan for shareholders, the disputed employees will face sanctions on a separate track, he added.

The FSS head also reiterated his apology over the recent disputes concerning his past overseas business trips sponsored by financial institutions in an alleged lobbying attempt.

”It was a common custom until the 19th National Assembly, but nevertheless I sincerely apologize," he said.

By Bae Hyun-jung (tellme@heraldcorp.com)