Who Received the Block Deal Shares of Dow Data by Chairman Kim Ik-rae?

‘Morgan Stanley 창구로 외국인이 매수’ Confirmed
Possibility of Morgan Stanley's Proprietary Capital Investment to Secure Profits
Cannot Rule Out Acquisition via ‘CFD Account’ Either

Kim Ik-rae, Chairman of Daou Kiwoom Group.

Amid an ongoing investigation into stock price manipulation allegations related to the stock price plunge triggered by Soci?t? G?n?rale (SG) Securities, there is significant interest in identifying the counterparty to Kim Ik-rae, chairman of Daou Kiwoom Group’s block deal (off-hours large-volume trade). Analyses suggest possibilities such as Morgan Stanley’s proprietary investment (PI) aiming to secure arbitrage profits, foreign investors’ trading, or acquisition through contracts for difference (CFD) accounts.

According to the Financial Supervisory Service’s electronic disclosure system, Chairman Kim disposed of 1.4 million shares of Daou Data through a block deal on the 20th of last month, securing 60.543 billion KRW. The shares were sold at 43,245 KRW per share. As a result of the block deal, Kim’s stake in Daou Data decreased from 26.66% to 23.01%. The buyer window for the block deal volume was Morgan Stanley, and the transaction party was confirmed to be foreign investors. The discount rate was 7%.

The market is closely watching who the counterparty to the block deal was. First, there is the possibility of a transaction between Chairman Kim and Morgan Stanley as the buying window. Foreign securities firms or some domestic securities firms acquire block deal volumes as part of proprietary investment (PI). They earn fees (0.5%~1%) for receiving the block deal volume and also generate arbitrage profits by selling the discounted shares in the market. An executive from Asset Management Company A said, "This is a transaction generally used when asset managers, institutional investors, or major shareholders need to handle block deal volumes," adding, "The securities firm that acquired the block deal volume sells shares depending on market conditions to gain additional profits."

There are also claims that the Daou Data block deal is difficult to view as a normal transaction. For PI investment, fundamentals and trading volume are key, but Daou Data is considered relatively risky. If a securities firm acquired Chairman Kim’s block deal volume for PI investment purposes, losses are currently inevitable.

The president of Asset Management Company B explained, "Daou Data’s trading volume briefly reached 700,000 to 800,000 shares at the beginning of the year, but generally remained at 200,000 to 400,000 shares," adding, "Maintaining a certain level of trading volume reduces the likelihood of losses for institutions acquiring block deal volumes through PI." He continued, "Major shareholder block deals are disclosure items, so there is a high possibility of short-term stock price decline, and it is hard to understand why anyone would accept block deal volumes with low trading volume despite this risk."

Even if the counterparty is a foreign institutional investor rather than Morgan Stanley, it is explained that the transaction would still not be reasonable. A financial investment industry insider said, "Even if it is an opportunity to buy Daou Data shares at a price 10% lower than the market price, the block deal scale exceeds 60 billion KRW."

The possibility of contracts for difference (CFD) is also raised. A financial investment industry insider said, "CFD accounts involve individuals depositing margin and entering into individual CFD contracts," adding, "Someone would have to place Daou Data purchase orders through numerous CFD accounts to acquire the block deal volume, which is not easy."

Meanwhile, two trading days after Chairman Kim sold 1.4 million shares through the block deal, on April 24, eight stocks including Daou Data, Samchully, Seoul City Gas, and Seongwang recorded consecutive daily limit-downs. All were flooded with sell orders from SG Securities, sparking suspicions of stock price manipulation. On April 28, the prosecution formed a joint investigation team with the Financial Services Commission and the Financial Supervisory Service and launched an investigation. Financial authorities believe that the stock price manipulation group recruited investors and used collusive trading methods involving mobile phones and securities accounts under their names to inflate stock prices.