Barclays, Citi alleged guilty of illegal short selling in FSS probe

The Financial Supervisory Service uncovered more cases of illegal short selling in its crackdown on the practice, with Barclays and Citibank the alleged culprits.

The headquarters office of Financial Services Commission located inside the government complex in Jongno District, central Seoul [NEWS1]

The Financial Supervisory Service (FSS) uncovered additional cases of naked short selling by two global investment banks, which have reportedly been identified as Barclays and Citi, amid the ongoing crackdown on the illegal trading practice in Korea.

An advisory committee on the capital market investigation and review under the Financial Services Commission (FSC) is currently looking into the recently surfaced allegations, as confirmed by the FSS on Tuesday following media reports.

However, the financial watchdog did not confirm either the names of the alleged culprits nor the amount of investments involved.

The cases will be referred to the Securities and Futures Commission (SFC) under the FSC, which is responsible for determining the scope of potential penalties. Details regarding the cases will be released upon a decision by the SFC, according to the financial authorities.

In July, the FSC imposed a penalty on the former Credit Suisse AG, which merged into UBS AG in May, amounting to 16.9 billion won ($12 million) 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.

BNP Paribas and BNP Paribas Securities in Korea were slapped with a combined fine worth 19 billion won while HSBC was penalized 7.5 billion won last year.

Naked short selling, the practice of selling shares without having borrowed them first, is illegal in many countries including Korea. Seoul implemented a temporary ban on all short selling in November in order to stamp out naked short selling. It extended that ban to March 2025 after uncovering illegal shorting among global investment banks.

FSC Vice Chairman Kim So-young told the press on Monday, “We will try our best to constantly communicate with foreign investors in the follow-up procedure given that they requested clarification during the process of amending short selling-related regulations,” ahead of the expiration of the ban slated for March 31.

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