Two global investment banks (IB) have been reported to the prosecution for engaging in illegal short selling transactions amounting to around 56 billion won (US$42.86 million).
The Seoul Southern District Prosecutors’ Office filed complaints on Dec. 3 related to alleged violations of capital market laws, specifically against BNP Paribas’s and HSBC’s Hong Kong subsidiaries. The complaints assert that their illicit naked short selling activities fundamentally undermine the fairness of the capital market.
Short selling is an investment technique where one anticipates a decline in stock prices, borrows stocks from others, and issues sell orders. Engaging in uncovered short selling, where one issues sell orders without borrowing stocks, is currently prohibited by law.
Last month, the Financial Supervisory Service (FSS) announced that Company A submitted uncovered short selling orders worth 40 billion won for 101 stocks, including Kakao, from September 2019 to May of last year. Company B placed uncovered short selling orders amounting to 16 billion won (US$12.25 million) for nine stocks, including Hotel Shilla, from August to December 2021. The two companies have been identified later as BNP Paribas and HSBC.
The FSS has expanded its investigation to include 10 global IBs due to the severity of their customary illegal short selling practices. The discovery of the wrongdoing by two to three of these IBs occurred during the expanded investigation process.
Earlier, the FSS had uncovered that the BNP Paribas and HSBC Hong Kong subsidiaries engaged in uncovered short selling, amounting to approximately 40 billion won and 16 billion won, respectively.