(BK) The Securities and Futures Commission of the Financial Services Commission imposed a pecuniary penalty of 6.05 billion won (US$4.58 million) on two securities companies that committed naked short selling.
The Financial Investment Services and Capital Markets Act of South Korea was revised in April 2021 so that illegal short sellers will face pecuniary penalties instead of fines.
The two companies have become the first such case.
Today, naked short selling is illegal in South Korea, unlike covered short selling.
Investors in the United States have raised naked short selling concerns on social media, urging the Securities and Exchange Commission to model the practice of nations such as South Korea.
Previously, illegal short selling in the South Korean stock market was detected infrequently and violators could go almost unpunished.
This is because the maximum fine according to the act before the revision was 100 million won (US$75,694).
According to the amended act, the maximum pecuniary penalty is equal to the amount of illegal short selling.
In addition, violation may lead to at least one year in prison or a fine equivalent to 300 to 500 percent of the illegal profit or avoided loss.
This model is raising attention in the United States as the predatorial practice has dominated the industry for decades.
Naked Short Selling in America
Today, naked short selling in the American markets is given a blind eye.
Retail investors believe U.S. regulators to be complicit in the market injustices that occur on a daily basis.
(Singapore) Genius Group (NYSEAMERICAN:GNS) CEO Roger Hamilton has led CEOs to take legal action against naked short selling in the market.
He recently shared a petition on social media to end naked short selling in efforts to raise awareness of the illegal short selling strategy.
Naked shorting is the illegal practice of short selling shares that have not been affirmatively determined to exist, per Investopedia.
The predatorial practice allows short sellers to short a stock without there actually being any stock available to short.
In 2015, The SEC approved the use of naked short selling on IPOs although it was deemed an illegal practice in 2010.
Roger Hamilton says he noticed something was wrong in his company stock after shares would plummet despite his company having strong fundamentals and funding.
This is when he began to speak publicly about what was happening to his company.
Another public figure who has spoken out against naked short selling is Jon Stewart.
Regulators have always had the power to stop the manipulation happening in our stock market but have created rules that cater primarily to hedge funds.
“The Game is Rigged” Says Ex-Citadel Data Scientist
Patrick McConlogue, an ex-Citadel Data Scientist said during the ‘meme stock’ frenzy that the stock market is rigged, claiming he helped design it.
“The game is not fair and it never has been. Individual investors, even when operating in a swarm, are destined to lose. How do I know? I helped design the game.”
The dilemma here is that institutions are able to get away with the ‘capitalism’ card every time an issue is brought to their attention.
SEC Chairman Gensler has said that the SEC cannot completely interfere with the industry due to a company’s capitalistic rights in America.
Which makes sense through a capitalistic view, however, there should be tougher laws in certain sectors and industries, especially those that have the power to create massive economic downturns.
Regulators in other countries have strengthened the punishment for naked short selling for a reason — the manipulation creates systemic risk.
The question is, how many times will the U.S have to see the collapse of markets and our economy to understand this?
Other countries have recognized these fallacies in their market, maybe it’s time the U.S does the same.
Related: ‘We The Investors’ Challenges Wall Street on New SEC Proposals
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We have been hearing this for 2 years. The corruption is too great. Who benefits from the fines being paid…