Korean authority to take strong actions to root out illegal short selling

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Financial authorities in South Korea are set to take unprecedentedly strong measures to root out illegal short selling.

“We have identified some global investment banks that have deliberately engaged in illegal short selling for an extended period,” a senior financial authority official told Maeil Business Newspaper on Thursday. “This is just the beginning. We will use all means to eradicate illegal short selling.”

The Financial Supervisory Service had earlier discovered that BNP Paribas and HSBC, along with their affiliated custodian securities companies, had engaged in deliberate illegal short selling for an extended period.

The authority is known to have also found many other cases of misconduct, indicating that similar illegal short selling occurred in other foreign securities firms.

“In particular, it is a significant problem that foreign investors, especially those based in Hong Kong, are profiting from short selling in Korea,” said another financial authority official. “In the case of systematic and prolonged illegal short selling, we will consider it the same as stock price manipulation.”

The move by financial authorities suggests that they are taking illegal short selling seriously and are ready to take exceptional measures. It also indicates a shift in their attitude, given that they previously downplayed the impact of short selling on stock prices, citing its small share of total trading volume.

Financial regulators are reportedly stepping up crackdowns on illegal short selling and improving their systems to better monitor the market. Financial Services Commission Vice Chairman Kim So-young emphasized the importance of the financial industry’s self-regulation efforts to eliminate unfair trading and unethical business practices during a roundtable with representatives from the financial investment industry held at the Korea Financial Investment Association in Yeouido on Thursday.

There have been numerous allegations among domestic retail investors that short selling has caused stock prices to fall.

This has led to suspicions that foreign institutional investors, who can engage in short selling freely, perceive the Korean market as a place where they can easily make a profit.