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South Korea’s stock market regulatory authority has disclosed its intention to levy substantial fines on two Hong Kong-based investment banks for their involvement in naked short-selling, marking a potentially record-breaking enforcement action.
In an official statement, the Financial Supervisory Service (FSS) revealed that the two unidentified investment banks had conducted naked short-selling transactions amounting to a total of 40 billion won ($29.58 million) and 16 billion won, respectively.
Naked short selling of stocks, a practice in which investors sell shares without first securing a proper borrowing arrangement or confirming the availability of borrowable shares, is expressly prohibited under South Korea’s Capital Markets Act.
These violations were of significant duration, spanning nine months through May 2022 for one bank and five months through December 2021 for the other. As a result, the FSS anticipates that the imposed fines will be of unprecedented scale.
Highlighting the seriousness of these infractions, the FSS stressed that they ran counter to ongoing efforts to create a more accommodating environment for foreign investors. The regulatory body affirmed its commitment to preventing such violations from recurring and stated its intention to investigate similar practices at other investment banks.
