The Financial Supervisory Service (FSS) is reportedly seeking a combined fine of 20 billion won (US$15.36 million) for BNP Paribas and HSBC, both of which have engaged in naked short selling. The FSS aims to impose an individual fine of 10 billion won on each of the financial institutions.
Bloomberg reported on Dec. 21, citing two anonymous sources, that the FSS has raised the issue with the Securities and Futures Commission (SFC). According to Bloomberg, the SFC discussed the amount of fines related to the naked short selling by BNP Paribas and HSBC during its regular meeting on Dec. 20 but did not reach a conclusion.
In October, the Financial Supervisory Service (FSS) revealed that it had uncovered BNP Paribas Hong Kong’s involvement in naked short selling, totaling 40 billion won (US$30.72 million) across 101 stocks, including Kakao, from September 2021 to May of the following year. The FSS also disclosed that HSBC Hong Kong engaged in naked short selling amounting to 16 billion won for nine stocks, including Hotel Shilla, from August to December 2021. In response to these findings, the FSS announced its intention to impose the largest-ever fines in its history.
Short selling involves borrowing stocks, selling them, and later buying them back to return when the stock price decreases, allowing the investor to profit from the price difference. On the other hand, naked short selling refers to placing sell orders without borrowing the stocks, classifying it as an illegal investment practice as it does not involve the proper borrowing process. Based on cases involving BNP Paribas Hong Kong and HSBC Hong Kong, the Financial Services Commission (FSC) has implemented a complete ban on short selling in the domestic stock market from Nov. 6.
Until now, the case where the SFC imposed the most fines for allegations of illegal short selling was in March, with ESK Asset Management facing a penalty of 3.87 billion won. During the same period, the SFC also imposed a fine of 2.18 billion won on UBS Securities for a similar issue. The government had previously imposed only administrative fines for illegal short selling, leading to criticism of lenient penalties. In response, it amended and implemented the Capital Markets Act in April 2021. Since then, fines of up to 100 percent of the short selling order amount can be imposed.
The SFC imposed a third fine, amounting to 4.8 million won, on French asset management company AUM Invest following penalties for ESK Asset Management and UBS Securities. Moreover, it has issued fines to over 10 domestic and international financial institutions. In May, the FSS identified a total of 42 entities as targets for the fine imposition plan. Among them, ESK Asset Management filed an administrative lawsuit in June against the financial authorities’ fine decision, while AUM Invest refused to accept the FSS’s fine notice, citing the company’s current bankruptcy proceedings.