The head of the Financial Supervisory Service (FSS) on Tuesday called for brokerages to strengthen protection for investors and internal control, in the wake of chaos over a dividend payment error at Samsung Securities Co.

At a meeting with the heads of 17 brokerages, FSS Gov. Kim Ki-sik said they must conduct reviews of their internal control mechanisms to prevent such errors from happening again and urged them to come up with fundamental measures to regain investor confidence and strengthen ethics rules for employees.

During his visit to a brokerage firm in Yeouido, the financial and business hub in western Seoul, Kim also floated the idea that securities firms run "red teams" to identify vulnerabilities in case ill-gotten gains are made through the trading system.

Samsung Securities has been under a firestorm of criticism after it mistakenly paid windfall stocks to its employees as dividends. 

The brokerage had originally planned to pay dividends of 1,000 won (US$0.93) to its employees Friday. However, the brokerage mistakenly paid 1,000 shares for each stake owned by its workers.

The chaos happened after a Samsung Securities trader made a keyboard entry mistake, typing "shares" instead of "won" in Korean when sending the dividends to employees.

Questions were also raised about whether employees could sell the mistakenly deposited shares, which do not exist, on the stock market and how they could sell the shares without reporting it to the brokerage.

A total of 16 employees at Samsung Securities were found to have sold the stocks Friday morning.

Among them, nine employees sold the stocks even after the brokerage sent a notice about the dividend error, according to the securities firm.

Samsung Securities said it relieved 20 employees, including the

16 who sold the stocks, from duties and will hold them accountable for the dividend chaos.

After the meeting with the FSS chief, Koo Sung-hoon, the chief executive of Samsung Securities told reporters that the brokerage has put priority on compensating investors.

Koo apologized again for causing concerns over the dividend error, saying the brokerage will punish the 16 employees who sold the stocks.

The chief executive said human error was partly behind the debacle, but the brokerage's internal control system was "not perfect."

Adding to the woes at Samsung Securities, the nation's biggest pension fund said it will halt stock transactions with the brokerage.

An official at the National Pension Service (NPS) said the fund decided to stop the stock trade with Samsung Securities due to "concerns about the safety of transactions" in the wake of the dividend chaos.

Other pension funds, including the Teachers' Pension, the Government Employees Pension Service and the Military Pension Service, joined the NPS in halting stock trades with Samsung Securities. (Yonhap)