Hankyung Research "Monitoring Shinhan Investment Corp Accident Loss Scale and Sanction Level"

Korea Ratings (Korea Investors Service) announced on the 14th that it will monitor the impact of the final loss scale and the level of sanctions by financial authorities on the credit rating of Shinhan Investment Corp., where a loss incident involving an Exchange-Traded Fund (ETF) recently occurred.

Korea Ratings stated, "If the loss scale expands significantly beyond expectations, it could burden profitability and financial soundness indicators," adding, "As financial authorities strengthen demands for internal control and risk management, if business activities are curtailed due to sanctions from this incident, it could lead to a weakening of the business foundation."

However, the estimated loss scale of approximately 130 billion KRW is currently assessed to have a limited impact on the company's credit rating. Considering Shinhan Investment Corp.'s capital strength and profit-generating capacity, the currently estimated loss scale is manageable. As of the end of June, Shinhan Investment Corp. recorded a capital of 5.4 trillion KRW and a net profit of 210.6 billion KRW.

Meanwhile, Shinhan Investment Corp. disclosed on the 11th that a loss estimated at 130 billion KRW occurred due to on-exchange futures trading and clearing. The ETF liquidity provider (LP) engaged in on-exchange futures trading beyond its intended purpose, resulting in excessive losses. However, it falsely registered the transaction as a swap trade (an act of exchanging financial assets or products at a specified future date) to conceal the occurrence of the loss.

Shinhan Investment Corp. identified this fact through its internal control system and reported it to the financial authorities. The Financial Supervisory Service dispatched an inspection team on the same day and commenced an on-site inspection.

At a senior officials' meeting on the same day, Financial Services Commission Chairman Kim Byung-hwan unusually mentioned the Shinhan Investment Corp. ETF incident, stating, "I hope the Financial Supervisory Service thoroughly inspects and investigates this incident and takes necessary measures based on the results."