Financial regulator moves to fine two IBs for illegal short selling

South Korea's financial watchdog said Sunday that it plans to fine two global investment banks (IBs) for illegal stock short selling.

The Financial Supervisory Service (FSS) said the two Hong Kong-based IBs are expected to have the "largest fines" imposed on them.

"This case involves illegal short selling for an extended period of time by global IBs that provide prime brokerage services, which is expected to lead to the largest fines since the penalty system was introduced for such practices," it said in a press release.

"In addition, the FSS has asked the suspected firms to come up with practical measures to prevent a recurrence of such cases," it added.

One of the firms placed orders to short sell 40 billion won (US$29.8 million) worth of local stocks between September 2021 and May 2022 while being aware that it would not be able to borrow the shares sold, resulting in illegal naked short selling, according to the FSS.

The other firm is suspected of placing illegal short selling orders worth 16 billion won ($11.9 million) between August and December of 2021.

The latest case comes after the FSS established an investigation team specifically dedicated to illegal short selling in August 2022.

The financial regulator said it has since inspected 51 firms on suspicions of illegal short selling, resulting in the imposition of 11.5 billion won in fines so far.

Meanwhile, the FSS asked foreign securities firms here last month to beef up their efforts to prevent illegal short selling, citing a recent increase in the number of such cases from four in 2020 to 14 in 2021 and 28 last year.

Source: Yonhap News Agency

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