Updated : 2015-04-22 18:14
RBC denies stock manipulation allegation
By Kim Jae-won
The Royal Bank of Canada (RBC) denied allegations Wednesday that it committed stock manipulation to avoid paying high returns to investors five years ago.
Earlier this month, the Supreme Court allowed two Korean investors to file a collective lawsuit against RBC over the Canadian investment bank’s management of equity-linked securities (ELS) in April 2009. Hannuri Law, a legal representative for the investors, argued that RBC intentionally sold some 70,000 shares of SK Holdings 10 minutes before its ELS matured. With this transaction, shares of SK Holdings closed at 119,000 won ($110), inflicting combined losses worth 3.26 billion won to 437 investors. “We maintain that the sole purpose of the transaction was to unwind a legitimate hedge. We have cooperated fully with the Korean authorities in this matter,” said RBC Director Sarah Small in an e-mail to The Korea Times.
She added that the lender remains committed to operating with the highest level of integrity, ensuring it conducts its businesses responsibly and honestly.
The financial regulator said that it is difficult to find out clearly whether RBC’s sale transaction was a legitimate hedge or a speculative trade. The Financial Supervisory Service (FSS) said that it remains to be seen how the court will decide on the matter because it is hard to judge the legitimacy of such derivative trade.
RBC is the largest bank in Canada by market capitalization. Its assets reached 1.1 trillion Canadian dollars in March with 454.3 billion Canadian dollars in loans and 654.7 Canadian dollars in deposits, according to the lender.
Meanwhile, the FSS said it is examining Hyundai Securities over the brokerage house’s alleged unlawful ELS management. The regulator said that the securities affiliate of Hyundai Group allegedly invested funds from the ELS in real estate, though they were designed to be invested in stock markets only.
“We plan to expand our investigation to other securities firms over their ELS management,” said Jeong Jae-ryong, a director at the FSS.
ELS are gaining popularity in local stock markets as investors seek higher returns amid historically low interest rates. According to data from the Korea Securities Depository, the combined amount of ELS sold in March reached 10.3 trillion won, up from 5 trillion won a year ago.
Market observers said that the regulator and the bourse operator need to watch carefully the derivatives market to protect investors. Korea’s derivatives market used to be popular among global investors, but many of them pulled their funds out a few years ago as the government imposed taxes on derivatives trades. The Korea Exchange aims to revive its old glory in the market by launching a marketing unit focused on derivatives later this year.