South Korea Regulators Now Probe Into Illegal Short Selling

November 3, 2023

South Korea regulators now probe into illegal short selling trades by global investment banks in efforts to root out manipulation.

Banks that have conducted short-selling trades most frequently in South Korea will be subject to the investigation that would start in November.

The regulator said it will collaborate with watchdogs in Hong Kong and Singapore for its probe, per BusinessTimes.

The FSS will “hold those responsible” and ensure “naked short selling practices don’t take hold,” the statement said.

Naked short-selling refers to the practice of selling shares that an investor doesn’t own and hasn’t borrowed.

The agency will look into all short-selling transactions since May 2021 when the country partially lifted a ban that was imposed during the pandemic.

The watchdog will also review the short-selling consignment order processes of Korean brokerages to establish if they were aware of illegal naked short selling by global investment banks.

A special 20-person investigation team will be launched on Nov 6, the FSS added.

Public perception of such trading practices in the Asian nation remains deeply negative, with local retail traders staging protests against these activities from time to time.

In the United States, naked short selling continues to be a big problem.

In September, Citadel Securities was charged for illegal short selling violations by the SEC.

According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa.

“Compliance with the order marking requirements of Reg SHO is a key component of regulatory efforts to curtail abusive market practices, including ‘naked’ short selling,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement.

Also Read: “The Game is Rigged”, Says Ex-Citadel Data Scientist

Citadel Is Now Suing The SEC Over New Transparency Rule

Ken Griffin’s Citadel Securities is now suing the SEC over its new market transparency rules meant to keep institutions under tighter surveillance.

“Citadel Securities and the American Securities Association, a trade group, announced on Tuesday that they are suing Wall Street’s top regulator over new rules on the funding of a comprehensive market data surveillance system.

The litigation, brought before the U.S. Court of Appeals for the 11th Circuit in Atlanta, escalates the investment industry’s battle with the U.S. Securities and Exchange Commission over the so-called Consolidated Audit Trail (CAT),” reports Reuters.

The ASA says that the SEC has “overstepped its statutory authority” and “failed to address investor and industry concerns” leaving them with no choice but to litigate.

“The Commission undertakes its regulatory responsibilities consistent with its authorities,” an SEC spokesperson said.

“The CAT is a repository of investor and transaction data meant to give regulators all-encompassing insight into U.S. market transactions.

The SEC mandated the CAT’s creation in 2012 as a response to the “flash crash” two years earlier, when a sudden plunge on major Wall Street indices temporarily erased nearly $1 trillion in market value.

Republican officials and industry representatives have said the system presents cybersecurity and privacy risks and is likely to pass undue costs on to investors.”

The Securities and Exchange Commission says the market maker violated a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short, or short exempt.

Also Read: SEC’s Director of Enforcement Now Under Investigation for Corruption

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