On the 8th on the Korea Exchange, the ACE SK hynix single-stock leverage exchange-traded fund (ETF) surged nearly 50% despite a plunge in its underlying asset, SK hynix, in an unprecedented event. At the center of this abnormal spike was a fatal "out-of-sync transaction" between internal departments at Korea Investment & Securities Co., according to confirmations.
According to the financial investment industry on the 12th, after the Korea Investment & Securities Co. LP department, the main liquidity provider (LP) for the ETF, withdrew all quotes near the close, the same company's brokerage department aggressively executed a market buy order, pushing up the price.
ACE SK hynix single-stock leverage is an ETF that tracks the SK hynix index at two times. As SK hynix plunged 7.68% on the 8th, it would have been normal for this ETF to close down about 15%. But the ETF jumped 49.7%.
According to the Korea Exchange (KRX), the indicative net asset value (iNAV) of ACE SK hynix single-stock leverage that day was 16,164 won, but the final closing price was 30,000 won, nearly twice as expensive. An abnormal transaction occurred with a divergence rate of 85.59%.
This debacle stemmed from a special situation right before the close. During the closing call auction that starts at 3:20 p.m., LPs are exempt from the obligation to submit quotes by rule. Accordingly, Korea Investment & Securities Co., the main LP, as well as Hana Securities and Mirae Asset Securities, kept sell and buy quotes thin, unlike the usual densely filled order book.
During this time window of extremely fragile liquidity, a buy order totaling 46,813 shares flowed in through the Korea Investment & Securities Co. window. At 3:30 p.m., a volatility interruption (VI) was triggered to curb market impact from the sudden order, extending the market close by two minutes to 3:32 p.m.
The problem came next. LP firms including Korea Investment & Securities Co. failed to monitor that trading had been extended by two minutes due to the VI and pulled all quotes the moment the original 3:30 p.m. close arrived. Immediately after, the Korea Investment & Securities Co. brokerage department, at a client's request, executed a "market buy" order. Unaware that the order book had effectively vanished, the market order swept up the higher-side quotes in an instant and, at the final extended close of 3:32 p.m., was filled at the absurd price of 30,000 won. The total filled amount exceeded 1.4 billion won.
A securities industry official said, "Korea Investment & Securities Co., which handles the main LP role for the ACE SK hynix single-stock leverage ETF, pulled its quotes, leaving an empty book, and the brokerage department at Korea Investment & Securities Co. placed buy orders into it, effectively creating the 50% spike," adding, "It occurred because the Korea Investment & Securities Co. brokerage department failed to confirm that a VI had been triggered, assumed quotes were dense, and executed large market buys."
A Korea Investment & Securities Co. official said, "The regular domestic stock market ends at 3:30 p.m., and from 3:20 p.m. there is no obligation by rule for securities firm LPs to submit quotes," adding, "During this time, large market buy orders were executed, widening the divergence."
In response, on the 9th the Korea Exchange (KRX) designated ACE SK hynix single-stock leverage, 1Q SK hynix futures single-stock leverage, and KIWOOM SK hynix futures single-stock leverage as issues to watch.