After listening to the story, Hyun-joo’s reaction was one of disbelief.
“So you’re telling me he did all that just because L6 exploded?”
“Well… that seems to be the case.”
The most crucial part of the story is missing, which is about foresight.
But it’s not something I can discuss here. It’s not like anyone would believe it even if I said it.
What’s crucial in investing is not some supernatural ability like foresight, but rather a sober judgment and analytical skills that don’t get swayed by emotions.
If such abilities existed, why bother with corporate analysis?
Feeling a headache coming on, Hyun-joo pressed her forehead with her fingers.
“Regardless, this has nothing to do with insider trading, right?”
Taek-gyu nodded.
“Don’t you need to have an insider to engage in insider trading, whether you actually carry it out or not?”
Hyun-joo looked at me. Like Taek-gyu, I nodded in agreement.
“Who do we even know at Seong Corporation anyway? And at the time of purchasing the options, L6 was doing well. Even Lim Jin-yong wouldn’t have known it would be discontinued.”
The core of insider trading lies in front-running using undisclosed information. Naturally, a trade made before the emergence of undisclosed information does not qualify as insider trading.
Hyun-joo’s gaze softened slightly but still showed signs of distress.
I cautiously asked, “But is this a big enough issue for the Financial Services Commission to get involved?”
The Financial Services Commission is nothing short of the Grim Reaper for financial institutions and investors. Their involvement signifies that our actions have attracted significant attention.
Hyun-joo spoke while smoking a cigarette.
“Do you know about the Deutsche Bank case?”
“No.”
While Taek-gyu shook his head, I nodded in recognition.
“Was that the Options Shock incident that happened before?”
“That’s right.”
Taekgyu asked, looking puzzled.
“What is that about?”
“It’s a stock manipulation incident that happened on the options expiration date.”
On options expiration dates, due to the liquidation of investors’ positions and index arbitrage, stock price volatility increases. Therefore, on Quad Witching Day when derivative product expirations (index futures, index options, individual stock futures, individual stock options) coincide, financial authorities are on high alert.
Fortunately, on that day, the options expiration proceeded without significant fluctuations. However, just three minutes before the market close, there was a massive sell-off of put options, massive buy of call options, and massive sell-off of stocks.
The index, which had been stable all day, plummeted by 50 points in just a few minutes due to the sudden selling pressure, causing a market capitalization of 30 trillion won to vanish into thin air.
“What happened during the closing auction caught regulators and investors off guard.”
“So, what happened next?”
Hyunjoo asked.
“Due to the unexpected drop, put options skyrocketed by hundreds of times, while call options became worthless. Financial institutions suffered huge losses, and some funds went bankrupt.”
As the situation seemed suspicious to everyone, financial authorities launched an investigation, revealing a shocking truth.
Deutsche Securities had poured over 2 trillion won worth of sell orders during the closing auction for the purpose of price manipulation, profiting through option trades to the tune of hundreds of billion won.
In short, they bet on a stock price drop and then manipulated the price to profit from it.
Not only Deutsche Securities’ Korea branch but even the parent company Deutsche Bank got embroiled in the incident, which received significant media coverage at the time.
Well, those not interested in finance probably didn’t pay much attention.
“They made a mere 50 billion won by manipulating stock prices, but you guys made over ten times that amount.”
“…”
Upon hearing these words, suddenly I feel like committing a heinous crime. We really made a killing, didn’t we?
“Your gains mean that financial institutions suffered losses. Thanks to the Deutsche Securities Gate, the margin system was strengthened. If not for that, securities firms and investment trusts would have collapsed one after the other.”
Options are a zero-sum game. Someone’s profit is inevitably linked to someone else’s loss.
The options we bought are practically impossible to exercise. If we hadn’t bought them, those options would have been automatically discarded, and the issuers could have avoided losses.
Then there wouldn’t have been such chaos.
Option buyers, even if they incur losses, are limited to the premium they already paid. On the other hand, option issuers typically earn stable sales revenues but might have to bear hundreds or thousands of times the loss in the worst-case scenario.
That’s why the margin system exists. Financial institutions can only issue options within the limits of the margin they can pay.
However, in an unprecedented situation like this, where the margin alone becomes unpayable.
“Small-scale companies will find it hard to avoid bankruptcy. Despite hedging, the losses absorbed by Golden Gate alone amount to $20 million. Domestic financial institutions may have to wipe out their entire annual profits right away.”
Unlike Seosung Electronics, whose stock price is recovering, securities are still declining.
While Seosung Electronics may manage its spot losses, the futures and options have incurred astronomical losses.
That’s why derivatives are said to be created by demons.
“Luckily, as long as it’s not insider trading, there shouldn’t be much to worry about in the investigation.”
“It’s fortunate to have a corporate entity for tax avoidance.”
Hyunjoo nodded at my words.
“Right. If OTK Company was a Korean entity, by now, we might have been sitting in the FSS interrogation chair instead of our home sofa.”
Thinking about being dragged to the FSS investigation room and thoroughly investigated, my spine chilled.
Taekgyu muttered as if complaining.
“What did we do wrong…?”
“It’s only natural to feel unjust since we didn’t manipulate stock prices like Deutsche Securities. From the perspective of financial institutions losing billions, there’s no shortage of resentment. ‘I thought I could quietly enjoy and spend 13 billion, but now this mess… What should we do with the money in the accounts?’
Now, it’s time to get to the point.
Taekgyu cautiously began, ‘First, I divided shares with Jinhoo. 80-20.’
Upon hearing this, Hyunjoo was taken aback. ‘You gave Jinhoo 20 percent?’
‘Oh, no. Jinhoo gets 80 percent. I have 20 percent. Right now, Jinhoo is the largest shareholder of OTK Company.’
‘… What?’
It took Hyunjoo a moment to understand his words. ‘What do you mean? Why did you give Jinhoo more than 80 percent?’
‘Jinhoo discovered the information and sold the put options. I only brought in the money. If it weren’t for Jinhoo, I wouldn’t have made this money in the first place.’
Taekgyu might think it’s obvious, but Hyunjoo’s perspective may differ.
In finance, it’s common sense that those who invest capital earn more profits than those who manage it. Even for hedge funds or private equity funds, taking more than 10 percent of profits as management fees is rare.
Sharing profits equally can be hard to grasp, let alone giving over 80 percent. It would be mind-boggling.
If they had known in advance, they might have stopped it.
‘Do you understand the implications of giving over 80 percent ownership? Now, OTK Company might as well belong to Jinhoo.’
Taekgyu nodded. ‘I know. For future investments, Jinhoo should be in charge.'”
Hyunjoo had an expression of disbelief on her face.
“You’re going to invest again?”
“Yeah.”
“Do you think investing is a joke? You got lucky this time, but do you think you’ll be successful again next time?”
“Don’t worry. I have everything planned out.”
Taekgyu was confident for a reason – he had a secret ace up his sleeve. The problem was he couldn’t reveal what it was.
“Do you ever think it might fail?”
“If it fails, it fails. I couldn’t have made that money if it wasn’t meant to be. Besides, I’ve already taken out all of the 13 billion. With just that money, I can live comfortably for the rest of my life.”
Hyunjoo nibbled on her lips.
It was natural for her to react this way when her younger brother suddenly earned billions, gave away 80% to friends, and insisted on continuing to invest.
“What exactly are you two planning to do?”
“…”.
In a few days, he would turn 23.
Despite the ten-year age gap and having known each other since middle school, she couldn’t help but see him as just a child.
“So, could you help us a little, sis?”
“What?”
“I’ll take 3% from my share.”
At Taekgyu’s words, Hyunjoo had a look of utter surprise.
“3% is…?”
“It’ll be about 20 billion.”
Hyunjoo dropped the cigarette she was holding.
Unlike Taekgyu, who seemed like a typical otaku to anyone, Hyunjoo had been a prodigy since she was young.
Despite having never received any private tutoring, she entered Korea University’s Economics Department as the top student. As a woman, she was the first to do so.
She then landed a job at the most challenging Golden Gate among global investment banks and was recognized for her abilities, eventually being promoted to the position of Asia branch manager.
The finance sector typically offers higher salaries compared to other industries, especially foreign investment banks.
Salaries in the finance sector vary greatly depending on individual abilities. Given Hyunjoo’s rank and skills, wouldn’t she be making at least $300,000 to $500,000?
While regular employees receive impressive salaries, even to Hyunjoo, $20 million is a staggering amount.
Now, an offer was made to give her that amount.
“Hyunjoo works at Golden Gate, so she must know that side of the business much better than us, right?”
“So, they want to give me shares too?”
Taek-gyu’s suggestion was to share not just employment but ownership, a proposal I agreed with. Caring for one’s older sister who earned money. This guy is a good guy.
I joined Taek-gyu in persuading her.
“You might worry that I’ll hold the majority stake and run OTK Company as I please, right? So, wouldn’t it be better for you to stay by my side?”
Even as the largest shareholder, one should not engage in embezzlement or fraud that harms the company.
Interpreted differently, as long as it’s not illegal, one can do almost anything. Such actions have led major shareholders to ruin their companies.
Hyunjoo, pausing to smoke, took a card out of her wallet and handed it to me.
“Jin-hoo, go get us some coffee outside. Add an extra shot.”
I could have used the coffee machine at home, but this probably meant she wanted some space?
“Okay.”
I took the card and left the house, heading to a nearby coffee shop to wait. After about 30 minutes, I texted Taek-gyu.
[How are things going?] [I’m still convincing. Wait.]I continued to wait.
After a while, I received a message, “Are you thinking of quitting your job?”
[I told them it’s not necessary to quit.]Working at Golden Gate, a global investment bank, provides access to exclusive information that regular investors cannot obtain. It’s more advantageous for us if Hyunjoo keeps working there.
About 10 minutes later, I got a reply.
“It’s done. Come in.”
I bought coffee and headed home. Taekgyu seemed pleased with how the conversation turned out.
“My sister agreed to help.”
I nervously took a seat as this time Hyunjoo handed the card to Taekgyu.
“Go buy a pack of Dunhill 1 milligram cigarettes. You didn’t ask me earlier when Jinhoo went out… Why are you asking me now? Okay, I’ll be back soon.”
Despite grumbling, Taekgyu accepted the card from Hyunjoo and left the house.
Alone with Hyunjoo, I asked, “Are you really helping us?”
Hyunjoo sipped her coffee and replied, “If they are offering 20 billion won, there’s no reason to refuse. Besides, if I didn’t help, they would find someone else.”
I chuckled, “That’s true.”
Although I probably wouldn’t receive a share of that money.
Hyunjoo glanced at the spot where Taekgyu was sitting.
“Instead of that, it’s better if I help. Plus, it seems like this guy is trying something so seriously for the first time.”
I’ve never seen him so enthusiastic before. If Taekgyu hadn’t shown any enthusiasm, we wouldn’t have even started in the first place.
“It’s Taekgyu’s money, so he’ll do whatever he wants. Since he’s already taken out the principal, he won’t have any trouble making a living even if things go wrong later on. More importantly…”
