FSS investigates fresh short selling scandal worth 'tens of millions'

The Financial Supervisory Service is investigating multinational investment banks naked short selling worth tens of millions of dollars.

Financial Supervisory Service (FSS) Gov. Lee Bok-hyun speaks during a media briefing in Seoul on Thursday. [YONHAP]

The country’s financial watchdog is investigating new cases of naked short selling, worth tens of million dollars, allegedly committed by multinational investment banks.

The decision, which Financial Supervisory Service (FSS) Gov. Lee Bok-hyun announced Thursday, follows the agency's imposition of a 26.5 billion won ($19.8 million) fine on BNP Paribas and HSBC late last month over naked short selling committed between 2021 and 2022. Lee said that the regulator had found “circumstances” of naked short selling by foreign investment banks. The total value of shares sold may be in the tens of millions of dollars.

"[Investigations] on most cases are nearly in final stages,” Lee told reporters, adding the FSS will “soon explain the outcome of the investigations to the people and also reflect them on the ongoing move to reform the stock short selling system.”

Naked short selling, which is illegal in Korea, is the practice of selling shares of an asset without securing them first.

President Yoon Suk Yeol addressed the matter the same day during a meeting at a human resource development center run by the Korea Federation of Small and Medium Business in Yongin, Gyeonggi. Representatives of government agencies including the Finance Ministry as well as economic experts and members of the public attended the gathering where the President received the first governmental policy report of the year.

Yoon said that the ban on short selling will remain in place until regulators can devise measures to mitigate its harmful effects on retail investors.

“There are people who say short selling will be banned temporarily until June and the ban will be lifted after the elections, but that's certainly not the case,” he said, referring to rumors that the ban was enacted to curry favor with voters ahead of April's parliamentary elections.

“It will only be lifted when an electronic system that can completely remove the side effects is firmly established. If not, we will keep the ban in place,” he said.

The country's financial regulator imposed the ban in early November as part of its efforts to crack down on illegal short selling by global investment banks. The measure is set to remain in place through the end of June.

BY PARK EUN-JEE, YONHAP [park.eunjee@joongang.co.kr]