South Korea Now Finds Banks Pursued Illegal Shorting Scheme
South Korea now finds banks pursued an illegal shorting scheme, uncovering a whopping $211.2 billion won ($156m), in manipulative trades.
South Korea’s financial watchdog said it has so far uncovered 211.2 billion won ($156 million) worth of illegal short trades by nine global investment banks, providing its latest formal update on a probe that began late last year, per Bloomberg.
The nine banks, whose names weren’t disclosed, violated mostly procedural rules while collectively shorting 164 stocks, according to a briefing given by the Financial Supervisory Service.
It is continuing to probe five other banks in the matter.
Two of the nine banks are already facing penalties imposed by the financial authorities and have been referred to prosecutors for further investigation for allegedly violating the nation’s capital markets law, Hahm Yong-il, senior deputy governor at the FSS, told reporters Friday.
The watchdog plans to review penalties on the other seven banks.
Activities of global banks and hedge funds have come under increased scrutiny in recent months in South Korea, as authorities boost steps to weed out naked short selling — a practice of selling shares without even borrowing them first.
While short selling remains legal in many markets, it is a contentious political issue in the emerging Asian nation, with its powerful retail investors often blaming it for stock declines, reports Bloomberg.
“The FSS found that the violation rate exceeded 20% in some cases, which suggests that illegal transactions have a big impact on a certain stock,” the financial regulator said in a statement earlier this year.
“It’s necessary to consider the impact of illegal short sales on an individual stock as such trades hinder fair pricing and increase short-term volatility,” it said.
Bloomberg reports the South Korea’s financial watchdogs derived the 20% figure by dividing the amount of violated orders on a certain stock by its daily trading value.
The FSS did not identify the equities that saw illegal trades and declined to say how frequently the trades exceeded that ratio.
In November, South Korea imposed a ban on short selling through mid-2024, a decision that drew big celebration from retail investors in the country.
Investors in the AMC, MULN, GTII, FNGR, and MMTLP communities are just a few of many who have been raising awareness of the malpractice happening in the U.S stock market via X.
Also Read: SEC Commissioner Now Says Securities Lending Facilitates Illegal Trading
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The issue here is that all they get is fines. Which is a small % of the profits they make. The banks should be named and shamed and the tickers named that they shorted. But they will not do that as it opens up massive lawsuits potential. Until they are given jail sentences and must pay all the money back and/or lose their licence, plus a heavy fine this will continue. Business as usual.
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