The prosecution has indicted the global investment bank (IB) HSBC Hong Kong branch and three affiliated traders on charges of illegal naked short selling. This is the first indictment case since the criminal penalty regulations related to this were established.
The Illegal Short Selling Investigation Team of the Seoul Southern District Prosecutors' Office (Team Leader Kwon Chan-hyuk, Chief Prosecutor of the Financial Investigation Division 1) announced on the 28th that they have indicted HSBC Hong Kong branch and three traders affiliated with the branch for violating the Capital Markets Act.
According to the prosecution, the defendants falsely notified the domestic branch securities department that they had completed borrowing stocks, despite not having borrowed them from August to December 2021, and placed short selling orders for 320,000 shares of nine listed companies, totaling approximately 15.8 billion KRW, thereby disrupting the domestic capital market. This is the first indictment related to illegal short selling since the criminal penalty provisions were newly established in the Capital Markets Act in April 2021.
The prosecution's investigation revealed that domestic securities firms confirmed whether stock borrowing was completed before short selling orders only verbally rather than with objective data, and that the global investment bank operated a system allowing direct access to the securities firms' computer networks to place sell orders directly on the Korea Exchange, effectively serving only as a conduit.
HSBC Hong Kong branch is suspected by the prosecution of maliciously and systematically evading domestic regulations and supervision by establishing and operating a system that periodically deletes server storage data of the domestic branch that executed naked short selling, and storing all key data on overseas servers.
The prosecution plans to promptly notify the Financial Services Commission and other relevant authorities of the issues revealed during the investigation, including the securities firms' inadequate borrowing verification methods leading to gaps in monitoring illegal short selling, and the malicious evasion of management and supervision by global investment banks.
A representative of the Seoul Southern District Prosecutors' Office stated, "We will do our best to maintain the prosecution to ensure that the defendants receive punishments commensurate with their illegal acts, and will continue to strictly respond to financial and securities crimes that undermine fairness and trust in the capital market, including illegal short selling."
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