Foreigners behind over 90% of illegal short sale activities in Korea

[Photo by MK DB]

Nine out 10 investors accused of illicit short sale on South Korean stocks from 2018 had been a foreign national, data showed.

Rep. Lee Jung-mun of the Democratic Party (DP) disclosed after a study of data from the Financial Supervisory Service, 119 out of 127 who had received disciplinary action for illicit short-sale practice had been foreign nationals.

¡°The fact that foreigners made up 70 percent of the total short-selling transactions over the past five years and that foreigners were behind 90 percent of illegal short-selling cases shows that financial authorities have not done enough to regulate illegal short-selling activity,¡± Lee said.

There were a total of 82 illegal short-selling cases over the past five years and other than the three cases that were not fined, illegal short-selling amounted to 151 million shares, or an average of 1.94 million shares per case, while fines came to only 163 million won ($124,751).

A revision to the Capital Market Act to toughen regulation on short-selling passed the plenary session of the National Assembly in 2020 but irregularities have not subsided.

President Yoon Suk-yeol last Wednesday thus ordered financial regulators to establish measures to prevent illegal short-selling activities and a day later officials from the Financial Services Commission (FSC), FSS, the Korea Exchange (KRX), and the Supreme Prosecutor's Office (SPO) held a meeting where they came up with new measures to curb illegal short-selling.

Along with the revival of the Joint Investigative Team on Stock Crimes, the fast-track procedure, where a case immediately goes straight to the prosecution, financial authorities will toughen day-to-day monitoring.

Penalties could be raised to fine at least three to five times the amount the person profited from the illegal short-selling. A revision of the Capital Markets Act that allows authorities to confiscate assets earned from illegal short-selling is also being considered.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]