"271 Billion KRW Fine Imposed on Global IB for 'Illegal Short Selling'"

Two Former Credit Suisse Group Affiliates
Record Fine Since 2021 System Implementation

The Securities and Futures Commission (SFC) under the Financial Services Commission imposed a record-high fine of 27.1 billion KRW on a global investment bank (IB) caught conducting illegal short selling worth 100 billion KRW.

Financial Services Commission. [Photo by Financial Services Commission]

At its 13th meeting on the 3rd, the SFC decided to impose a total fine of 27.173 billion KRW on two former Credit Suisse Group affiliates, CSAG (now UBS AG) and CSSL, for violating short selling regulations. This is the largest fine imposed since the short selling fine system was implemented in April 2021.

The previous record for the largest fine imposed on an individual global IB was 16.94 billion KRW.

According to the SFC, CSAG submitted sell orders for 162,365 shares of 20 companies (order amount approximately 60.3 billion KRW) that it did not own from April 7, 2021, to June 9, 2022. CSSL submitted sell orders for 401,195 shares of 5 companies (order amount approximately 35.3 billion KRW) that it did not own from November 29, 2021, to June 9, 2022.

They violated short selling regulations by selling stocks before the return of shares lent to affiliated companies within the same financial group or other securities firms was confirmed. Additionally, they sold lent shares to a third party on the transaction day (T) and requested early repayment of the shares from the borrower the following day (T+1).

Short selling is an investment technique where an investor borrows shares they do not own and sells them, then repurchases the shares at a lower price if the stock price falls, returning the shares and profiting from the difference. Under the current Capital Markets Act, short selling without borrowing shares in advance (naked short selling) is illegal.

The SFC viewed this as naked short selling because the return of the lent shares was not confirmed from the time of the sell order until the stock trade settlement date, which could have led to settlement failure.

However, considering that actual settlement failure did not occur and there was no market impact, the fine was reduced from the initially pre-notified 50 billion KRW by the Financial Supervisory Service.

Prior to this, at the 12th meeting on the 19th of last month, the SFC decided to impose a total fine of 284.2 million KRW on six domestic and foreign financial investment firms and one individual investor for violating the obligation to report and disclose net short selling positions.