South Korean Watchdog Exposes Hong Kong Investment Banks’ Illegal Short-Selling Activities

The FSS revealed that the two unnamed investment banks conducted naked short-selling operations, one amounting to 40 billion won ($29.58 million) and the other to 16 billion won.

South Korea’s financial regulatory authority, the Financial Supervisory Service (FSS), disclosed on Sunday that it has identified two Hong Kong-based investment banks involved in illegal naked short-selling activities.

These illicit transactions are expected to lead to significant fines.

The FSS revealed that the two unnamed investment banks conducted naked short-selling operations, one amounting to 40 billion won ($29.58 million) and the other to 16 billion won.

Naked short selling refers to the practice of selling shares without first securing them through borrowing or confirming their availability, a prohibited act according to South Korea’s Capital Markets Act.

The regulatory breaches committed by these global banks spanned extended periods, with one bank engaging in such activities for nine months through May 2022, and the other for five months through December 2021.

These infractions are anticipated to result in record-breaking fines, highlighting the seriousness of the violations.

The FSS emphasized the significance of preventing such violations from recurring, particularly as they undermine the efforts made by authorities to foster a more conducive environment for foreign investors.

As part of its commitment to maintaining market integrity, the FSS also announced its intention to conduct further investigations into the practices of similar investment banks.

This revelation comes as a reminder of the crucial role regulatory bodies play in ensuring the fair and transparent functioning of financial markets. Such actions not only safeguard the interests of investors but also contribute to maintaining the credibility and attractiveness of South Korea’s stock market to international investors.

The FSS’s proactive stance in uncovering and addressing these illicit activities demonstrates its commitment to upholding the rule of law within the financial sector.

As the fines levied against these investment banks are expected to be substantial, they serve as a clear deterrent to others who might consider engaging in similar illegal practices in the future.

In conclusion, South Korea’s financial watchdog, the FSS, has identified two Hong Kong-based investment banks involved in naked short-selling, highlighting the need for robust regulatory oversight to maintain market integrity and protect the interests of investors.