2 Credit Suisse firms hit with record fine of $19.5M total for short selling

A department of the Financial Services Commission levied a fine of 16.9 billion won for the former Credit Suisse AG, an all-time high for a single entity.

A logo of Credit Suisse is shown in Bern, Switzerland in November 2023. [REUTERS/YONHAP]

Korea’s financial authorities slapped two Credit Suisse firms with record fines worth 27.1 billion won ($19.5 million) in total for illegal stock short trading.

The Securities and Futures Commission under the Financial Services Commission (FSC) on Wednesday decided to impose a penalty on the former Credit Suisse AG, which merged into UBS AG in May, amounting to 16.9 billion won for illegally shorting stocks worth 60.3 billion won from April 2021 to June 2022.

Credit Suisse Singapore was fined 10.2 billion won for illegal short trading worth 35.3 billion won from November 2021 to June 2022.

Combined, it is the heaviest penalty for the practice ever in Korea, higher than the 19 billion-won fine levied on BNP Paribas and BNP Paribas Securities in Korea last year.

The 16.9 billion-won fine imposed on UBS AG is also the highest on record levied against a single entity.

The two are accused of naked short selling — selling tradable assets without owning or borrowing them first, which is illegal in Korea.

According to the FSC, the two trading firms are suspected of not recalling securities that they had lent out to other companies before selling the securities to third parties.

The current law permits selling stocks if their return is ensured by the time of sale, but the financial regulator decided that the delayed recall requests by the former Credit Suisse companies for the lent-out securities constitute naked short selling.

In November of last year, the financial regulator reinstated a total ban on short selling after uncovering illegal short sale cases by global investment banks.

The temporary ban, which was initially set to expire at the end of last month, was extended through March of next year.

The government announced a major overhaul in the short-selling system in June, which includes an alignment of regulations applied to institutional investors with those applied to retail investors to “level the playing field.”

The FSC and the country’s bourse operator, the Korea Exchange, are currently establishing a monitoring system for naked short trading, dubbed the Naked Short Selling Detecting System, designed to detect any illegal short trading by institutional investors. The system is scheduled to be completed by next March.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]