South Korea Levies $20 Million in Fines on BNP Paribas and HSBC for Naked Short Selling

In a significant move to clamp down on market malpractices, South Korea has imposed hefty fines on two international banking giants and a local brokerage for engaging in naked short selling. The Financial Services Commission (FSC) of South Korea confirmed the imposition of fines amounting to 26.5 billion won (approximately $20.3 million) on BNP Paribas SA, its domestic brokerage arm, and HSBC Holdings Plc. This action by South Korea marks the heaviest financial punishment given for such violations in the country's history.

Uncovering the Illicit Activity

Naked short selling, the practice of selling shares without first ensuring their availability for borrowing, is prohibited in South Korea. Through the penalties, South Korea aims to uphold market integrity and safeguard investor trust. Detailed examinations revealed that the unauthorized short selling activities by these entities spanned several months and were deemed to be deliberate.

Record Penalties for Major Banks

As part of its strategy to root out illegal activities from its stock markets, the FSC announced fines of 11 billion won for BNP Paribas and 8 billion won for its Korean brokerage unit. Meanwhile, HSBC received a fine of 7.5 billion won. The regulators have also expressed their intentions to refer the cases involving these banks to public prosecutors for further investigation.

Enhanced Regulatory Oversight

Regulatory vigilance intensified after it was unveiled that substantial illegal naked short selling was being conducted by global investment banks. Following this, a comprehensive ban on short-selling was established, extending until the end of June 2024. In another recent action, three global hedge funds faced combined fines of 2 billion won for infringements of the capital markets law, which included illegal short-selling and making unfair trades.

Public Sentiment and Market Impact

The Korean public has consistently viewed short-sellers unfavorably, often engaging in protests and attempts to counteract the adverse effects of such trading strategies. Despite these sentiments and ongoing efforts to spike prices of targeted stocks, the market continues to grapple with heightened volatility.

SouthKorea, Fines, NakedShortSelling