BNP Paribas, HSBC, brokerage firms fined $20.4M for naked short selling

Korea’s financial regulators slapped BNP Paribas, HSBC and brokerage firms with a combined 26.52 billion won ($20.4 million) in fines for illegal short selling in Korea, the heaviest penalty for the practice.

Financial Services Commission Vice Chairman Kim So-young speaks in a meeting held to discuss financial market in central Seoul on Wednesday. [YONHAP]

Korea’s financial regulators slapped BNP Paribas, HSBC and executing brokerage firms with a combined 26.52 billion won ($20.4 million) in fines for illegal short selling in Korea, the heaviest penalty for the practice.

The Securities and Futures Commission under the Financial Services Commission (FSC) concluded Friday that two global investment banks based in Hong Kong and financial firms that executed the transactions violated the capital market law by committing naked short selling.

The commission did not specify the names of the banks, but they were reported to be BNP Paribas and HSBC by several media outlets, including Bloomberg.

Naked short selling is selling tradable assets without borrowing them first, which is illegal in Korea. Complaints against the banks and the local financial firms will also be filed to the prosecution.

The global banks responsible for the illegal practice traded assets worth 56 billion won from 2021 through 2022, according to regulators. One bank illegally shorted 101 stocks, while the other illegally shorted nine stocks.

The five-member commission, led by the FSC Vice Chairman Kim So-young, reached the conclusion two months after the Financial Supervisory Service reported the illegal practice.

“We imposed the largest fines for violations of short selling regulations after concluding that it is a serious matter that harms the order of the capital market and investor trust,” said the commission.

The largest ever penalty imposed by the FSC for illegal short selling was 3.87 billion won imposed on an undisclosed financial company in March.

The financial regulators reinstated a total ban on short selling of stocks in November, vowing to improve the system to eradicate illegal short selling.

The ban, which will last through the end of June 2024, also invited criticism that it could damage foreign investors' trust in the Korean market. It was also accused of being a political maneuver to appease retail investors before the general election in April 2024.

On Wednesday, financial regulators fined three unnamed global hedge funds 2 billion won for violations of capital market law, including illegal short selling and unfair trades.

The FSC “will actively build related computerized system to dispel retail investors’ concerns on illegal short selling,” said Kim in a statement.

BY JIN MIN-JI [jin.minji@joongang.co.kr]