The Short Selling Investigation of 14 Banks Is Now Coming To An End This Year

November 14, 2024

The short selling investigation of 14 banks is now coming to an end this year, according to the head of the Financial Supervisory Service.

Lee Bok-hyun, the governor of the Financial Supervisory Service (FSS), announced at an investment relations event in Hong Kong that the comprehensive investigation into illegal short selling will be completed by the end of this year.

This initiative is intended to address concerns about investment risks in the Korean stock market ahead of the planned resumption of short selling in March.

He highlighted that clarifying regulations, including penalty standards, will help create a more predictable environment for investors.

During the “Invest K-Finance: Hong Kong IR 2024” event at the Grand Hyatt Hotel on November 13, Lee expressed his desire to resolve all outstanding issues related to past regulations within this year.

He reassured investors that once the year passes, they need not worry about being subject to investigations.

He noted that while intentional and organized misconduct should not be tolerated, issues stemming from simple errors or vague regulations should be handled with less severity, focusing on administrative actions rather than criminalization.

The FSS has been investigating illegal short selling activities involving 14 global investment banks since last year.

The event was co-hosted by the FSS, local governments (Seoul and Busan), and several financial institutions, attracting 230 executives from 102 global investment firms, including HSBC, CITIC Securities, and Goldman Sachs.

Investor concerns regarding short selling regulations were a key topic. In discussions with overseas investors, Lee aimed to clarify misconceptions about short selling, acknowledging that the current total ban might be viewed unfavorably.

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He indicated efforts to align Korea’s system with those of major markets like Hong Kong, London, and New York, with revisions expected to be completed by the first quarter of next year.

In addition to establishing an electronic system to prevent illegal short selling, Lee stressed the importance of clarifying penalty standards to increase investor confidence.

He emphasized to reporters that if penalties outweigh potential benefits, investors will be deterred from entering the Korean market.

He promised to define penalties and exemptions based on the type of violation to alleviate concerns among both domestic and foreign investors.

Furthermore, once the system to detect naked short selling is in place, he expects unintentional short selling due to negligence to decrease significantly.

Peter Stein, CEO of the Asia Securities Industry & Financial Markets Association (ASIFMA), expressed hope that Korea would effectively prevent naked short selling and quickly lift the ban on short selling.

Lee also highlighted the government’s commitment to enhancing the capital market through several initiatives.

These include improving stewardship code guidelines, gradually mandating English disclosures for listed companies, introducing an alternative trading system (ATS), establishing an electronic short selling system, implementing measures to strengthen communication with investors, and streamlining the delisting review process for marginal companies.

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