Two global IBs expected to face maximum fines for illegal short selling in South Korea

South Korea's Financial Supervisory Service announced on the 15th that two global IBs (investment banks) based in Hong Kong engaged in illegal short selling totaling 56 billion won (approximately 6.1 billion yen) in the South Korean stock market. surcharge
It is expected that the largest fine will be imposed since the system was introduced. The Financial Supervisory Service plans to expand its investigation into illegal short selling of other global IBs.
Illegal short selling is the act of selling a stock without owning it and paying it off later by borrowing money. The cases that have been exposed so far are mostly
Most of the cases were due to hedge fund order errors or errors, but this time the PBS business (Prime Brokerage)
It is revealed for the first time that Global IB, which operates a service (Service), has been conducting continuous illegal short selling.
Became. According to the Financial Supervisory Service, Company A conducted debt-free short selling worth 40 billion won in 101 stocks, including cacao, from September 2021 to May 2022. Company A is a foreign institutional investor
When concluding a sell swap transaction with the company, the company calculated the shares owned by the departments overlappingly and short-sold more shares than the outstanding balance. How Company A borrows after the fact, knowing that the payment amount is insufficient
The illegal act was left unattended. A domestic brokerage firm that is affiliated with Company A also continued to accept borrow-free short selling orders.
Company B also conducted debt-free short selling worth 16 billion won in nine stocks from August to December 2021.
When Company B receives a sell swap order from a foreign institutional investor, it short-sells the stock by making a contract based on the number of shares that can be borrowed in the future, rather than the number of shares that has been confirmed in advance.
Kim Jung Tae, assistant director of the Financial Supervisory Service, said, ``Global IB's lack of understanding of the South Korean system led to illegal short selling like this.
``It is inconceivable that the company continued to do so,'' and added, ``We recognize this to be intentional and illegal short selling, as it has been short selling without borrowing for a long period of time.''
However, the Financial Supervisory Service concluded that these two companies did not sell short before the negative information was made public, and that the
We believe that the impact of legal short selling on the stock market at the time was also small. Lee Seung-woo, Director of Research 2, said, ``The proportion of short selling of individual stocks itself is not large, and losses are incurred in the process of short selling and liquidating again.''
``In many cases, this has resulted in a decline in stock prices,'' and ``it is difficult to definitively judge that it has had an impact on the decline in stock prices.'' Director Lee said, ``Since the IB only serves as an intermediary, profits and losses due to price fluctuations are lost to the final investment.
``I suspect that the illegal process was left unattended in order to generate fee income.'' The Financial Supervisory Service has detected the largest illegal short selling since the introduction of the surcharge system.
I expected a fine to be imposed. The largest amount to date was 3.87 billion won to a foreign financial investment company in March of this year. The Financial Supervisory Service is investigating major global companies similar to the ones exposed this time.
The plan is to expand the survey to include global IBs. In the case of some IBs, violations of capital market laws have been discovered over a long period of time, such as selling more than the amount held before the market opens, and are being investigated.
There is. We plan to immediately launch investigations into other IBs when abnormal transactions are discovered. It will also strengthen inspections of domestic securities companies that accept orders from global IBs.
The Financial Supervisory Service said, ``We will take all possible measures, including close cooperation with overseas supervisory authorities as necessary, to tighten the illegal short selling activities of financial investment companies located overseas, and strengthen domestic capital markets.''
``We will establish order.'' By September of this year, the Financial Supervisory Service's short selling investigation team had fined 30 people (21 foreigners) 10.49 billion won for short selling without borrowing.
commanding money.