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Global Banks Broke Rules

14.08.2002 | Source:



South Korea's s financial supervisory service found the global investment banks UBS Warburg and Merrill Lynch broke rules by disclosing equity research to clients before its release to the wider market. UBS was given a "severe disciplinary warning" that could lead to the suspension of the bank's operating licence if it repeats the violations. Merrill has a milder "disciplinary warning". One UBS employee was suspended, five were warned or censured, and four will have their salaries cut by the regulator. One unidentified Merrill employee was suspended, four were censured and one will suffer a salary cut. It would push ahead with investigations of domestic and foreign brokerages to root out wrongdoing and "reinforce market discipline". On Monday, the regulator said it was putting more than 20 institutions under scrutiny. Both UBS and Merrill made conciliatory responses to the FSS's announcement, suggesting they were willing to accept the punishments and repair relations with the regulator. However, in private, foreign brokers in Seoul accused the FSS of seeking scapegoats for the slump in South Korea's stock market. The FSS found UBS analysts alerted its equity sales staff to an impending downgrade of shares in Samsung Electronics, South Korea's largest company, before the report's publication on May 10. UBS said the message was sent after the Seoul stock market closed on May 9. Merrill was found to have released two reports, including one about LG Electronics, to selected clients up to 34 hours before publication, allowing recipients to act on market- sensitive information. The Seoul clampdown on securities analysts has added to this year's global scrutiny of the investment banking industry, reflecting concerns about conflicts of interest between the research, trading and banking operations of financial institutions. Merrill agreed to pay $100m to US authorities in May to settle charges that its analysts had promoted companies that were clients or potential clients of the institution's investment banking arm. Yesterday's action must be ratified at a meeting on Friday by the financial supervisory commission. It is the first time the FSS has punished foreign brokerages for violating rules since the watchdog was set up in 1999. ©

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