The bigger short: FSS uncovers $74.6 million more in illegal selling
![Financial Supervisory Service Deputy Director Ham Yong-il speaks during a press briefing on the interim result of the ongoing investigation on global investment banks over illegal short selling practices in western Seoul on Friday. [YONHAP]](https://koreajoongangdaily.joins.com/data/photo/2024/05/06/a669ae74-27ec-4d98-b850-d730d5fac5a5.jpg)
Financial Supervisory Service Deputy Director Ham Yong-il speaks during a press briefing on the interim result of the ongoing investigation on global investment banks over illegal short selling practices in western Seoul on Friday. [YONHAP]
Korea's financial watchdog uncovered an additional 104.6 billion won ($74.6 million) worth of illegal short sales involving seven global investment banks, bringing the total amount of involved assets to 211.2 billion won.
According to the interim result of an investigation by the Financial Supervisory Service (FSS) announced on Monday, BNP Paribas, HSBC and seven others were engaged in illegal short selling activities from May 2021 to December of last year, involving 164 stocks.
The probe began last November to scrutinize the trades of 14 global investment banks operating in Korea, whittling the list of violators down to nine. The FSS is now focusing on the remaining five firms for potential transgressions.
The latest announcement follows the previous findings by the financial watchdog that BNP Paribas and HSBC were involved in naked short selling of assets worth 55.6 billion won, resulting in a combined 26.52 billion won fine last December. It was the heaviest penalty ever imposed for the practice in Korea.
A month later, the FSS identified another two investment banks involved in illegal short selling worth 54 billion won. The latest report from the watchdog said that the scale of the banks' violations was bigger than the January announcement, with an additional 62.8 billion won in illegal trading uncovered.
The document also contained allegations against five new banks.
Naked short selling, an illegal practice in Korea, is shorting stocks without first borrowing them. Authorities banned the short selling of shares through June after finding that some global investment banks made such trades.
The FSS promised to promptly implement appropriate penalties after the completion of additional investigations.
However, the agency added that the naked short selling was mainly caused by “a lack of understanding of the domestic rules, insufficient internal control systems and mistakes by traders” rather than malicious intent to manipulate stock prices.
The regulator is currently working with financial authorities overseas including those in Hong Kong to execute joint investigations. The FSS plans to hold a meeting with major global investment banks in Hong Kong in May on Korea’s short selling regulations and the upcoming monitoring system.
The FSS said on April 25 that the Korea Exchange will set up a platform on its server that will collect short selling data from the stock trading records of 21 foreign and 78 local institutions.
On whether the current short selling ban will be lifted in June as planned, FSS Deputy Director Ham Yong-il said during a press briefing on Friday that “it is a policy decision” that should be made by the Financial Services Commission.
President Yoon Suk Yeol said in January that the short selling ban will stay in place until an electronic system that can remove the side effects is established.
BY SHIN HA-NEE [shin.hanee@joongang.co.kr]
with the Korea JoongAng Daily
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