Kiwoom Securities, 1 Billion KRW Loss from 'Minus One Oil' Incident

Less Damage Than Market Overestimation
"Limited Impact on Performance but Some Reputation Damage Inevitable"

[Asia Economy Reporter Oh Ju-yeon] Kiwoom Securities suffered an unprecedented trading disruption due to the crude oil price crash, significantly damaging its reputation among investors. The scale of the damage is understood to be smaller than what the market has perceived, so the impact on earnings is expected to be limited. However, there is speculation that if the victims pursue lawsuits against the company in the future, complications may arise.

According to Kiwoom Securities on the 22nd, the damage caused by the failure of their Home Trading Service (HTS) to recognize the negative price of May delivery West Texas Intermediate (WTI) crude oil around 3 a.m. the previous day is estimated to be about 1 billion KRW. The market had reported that the company’s costs could reach up to several billion KRW, and some investors even spread rumors that the losses from this negative oil price incident could amount to hundreds of billions of KRW, threatening the company’s survival.

However, Kiwoom Securities stated that the size of the affected futures contract itself is not large, and based on the number of complaints received so far, they do not expect a significant financial burden. A Kiwoom Securities official said, "The market has greatly exaggerated the scale of the damage, but based on what we have identified so far, it is estimated to be around 1 billion KRW."

The company’s image damage appears inevitable. Junseop Jeong, a researcher at NH Investment & Securities, said, "Since the trading volume of the affected futures is not large, the company’s financial burden is unlikely to exceed several billion KRW. However, if the affected investors file complaints with the Financial Supervisory Service or proceed with lawsuits against the company, the cost burden on the company could be greater than initially expected."

The problematic product is the WTI Mini Crude Oil Futures. The trading was halted because the system failed to recognize the negative oil price. As a result, investors holding long positions in crude oil futures were forced into margin calls and compulsory liquidation. A margin call generally refers to a situation where a customer who has received a margin call (a request to deposit additional collateral) fails to deposit the required additional margin within the specified time, leading the securities firm to arbitrarily dispose of the customer’s unsettled positions. It is reported that some investors not only lost their principal but also incurred debt during this process.

Futures investors bet on price increases or decreases by taking long (call) or short (put) positions. They invest according to the contract size of the product. At this time, they can invest with a margin lower than the actual investment amount. Mini futures have smaller contract sizes and lower margin requirements compared to standard futures. This structure allows trading of over 100 million KRW worth of contracts with only 10 million KRW in margin.

The WTI Mini Crude Oil Futures have a similar structure, but the margin requirement is not as low as one-tenth. While investors can achieve large profits with small capital through leverage if they gain returns, the problem is that they can incur large debts if they suffer losses. For example, if an investor trades 100 million KRW worth of contracts with 10 million KRW margin but the price falls and the value drops to 80 million KRW, the original 10 million KRW margin becomes zero, and the investor must repay the difference caused by the price decline.