Traders in Korea Caught Out as Sub-Zero WTI Freezes Platform

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(Bloomberg) -- Oil’s meltdown froze the trading system of Kiwoom Securities Co. early Tuesday after the South Korean brokerage popular with retail investors failed to recognize prices below zero.

The incident occurred just after West Texas Intermediate crude for May delivery plunged into negative territory for the first time ever, according to a spokesman at the brokerage, who asked not to be identified because of internal policy. The company is investigating the exact cause and losses from the halt, but the error was likely due to the system never having experienced sub-zero levels, he said.

The freeze literally tied the hands of investors trading Kiwoom’s so-called mini WTI futures, which represent about half the trading volumes of the benchmark contract. They weren’t able to sell or roll over to the next contract even if they wanted to and were forced to do nothing as prices plummeted to as low as minus $40.32 a barrel. The traders are facing losses, following a cash call, according to a report in the Chosun Biz newspaper.

“All I could do was to sit still and watch as I was making losses because the system wasn’t allowing me to put in a minus symbol,” an unidentified investor wrote on the customer service page of Kiwoom’s website. “Then, I was unable to either sell or make changes to my orders and, after that, there was a series of systematic errors.”

WTI for May collapsed on Monday amid fears U.S. storage space was rapidly running out as the coronavirus eviscerates demand for fuels. The contract expired Tuesday at $10.01 a barrel. Front-month June futures added 2% Wednesday to $13.59 as of 9:06 a.m. Singapore time after falling almost 9% in the previous session.

Speculation has been swirling over who was caught out by the plunge. Given the difficulty and costs of storing oil, even in normal times, investors typically never keep positions into expiration, Goldman Sachs Group Inc. said in a note. The surge in retail investment in oil in recent weeks suggest that retail investors were likely still long May WTI contracts into this week, the bank said.

Other South Korean brokerages, including Samsung Futures Inc. and NH Investment & Securities Co., managed to operate normally through the price crash. There must have been investors who rushed to buy WTI when it fell close to zero, not knowing that it would plunge even further, said Will Sungchil Yun, a commodities analyst at VI Investment Corp.

©2020 Bloomberg L.P.

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