The Securities and Futures Commission Files Criminal Complaints Against Both Companies
The financial authorities have imposed the largest-ever fines on global investment banks (IBs) BNP Paribas and HSBC for illegal short selling.
The Financial Services Commission's Securities and Futures Commission announced on the 25th that it decided to impose a total fine of 26.52 billion KRW on the two financial firms for violations of short selling restrictions under the Capital Markets Act, due to their long-term naked short selling orders and custody activities. This is the largest fine since the short selling restriction penalty system was introduced in April 2021. Along with this, the two financial firms were also reported to the prosecution.
BNP Paribas Hong Kong branch submitted naked short selling orders worth approximately 40 billion KRW for 101 stock items, including Kakao, from September 2021 to May 2022. The company placed orders based on double-counting of owned shares across departments.
The Securities and Futures Commission explained, "Although they were aware of the insufficient quantity available for sale, they continued external post-borrowing and settlement," and added, "Despite being fully aware of the possibility that naked short selling could continue in the future, they neglected to prevent it and submitted short selling orders, which is judged to be intentional."
The Commission also found that the domestic custodian securities firm affiliated with BNP Paribas committed a serious violation of the Capital Markets Act by continuously accepting naked short selling orders without identifying causes or taking preventive measures, despite knowing that shortages in inventory were occurring.
Hong Kong HSBC submitted naked short selling orders worth approximately 16 billion KRW for nine stock items, including Hotel Shilla, from August to December 2021. The company entered contracts based on the quantity of shares that could be borrowed in the future, rather than the quantity of shares confirmed to be borrowed in advance.
The Commission judged that HSBC intentionally violated the law by continuing the practice of short selling first and borrowing later for a long period, despite knowing that such short selling processes did not comply with domestic short selling regulations.
Meanwhile, the financial authorities are currently conducting a focused investigation into short selling transactions by global IBs and others. They also plan to closely examine the possibility of short selling restriction violations by custodian securities firms.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
