The Hong Kong branch of investment bank HSBC, accused of illegal short selling worth 16 billion KRW, has been acquitted.
The Seoul Southern District Court Criminal Division 13 (Presiding Judge Kim Sang-yeon) acquitted Hong Kong HSBC on the 11th of charges of violating the Capital Markets Act.
The court stated, "HSBC has a system that settles the difference after short selling, so while the act of naked short selling is acknowledged, there is no evidence to prove that employees knowingly engaged in naked short selling."
Trader A and two others from HSBC's Hong Kong branch were indicted in March last year on charges of short selling 318,781 shares (15.78468 billion KRW) of nine listed companies including Hotel Shilla through a naked short selling method via the domestic branch securities department, after receiving sell swap orders (the act of exchanging financial assets or products at a specified future date) from global asset management firms and other investors from August to December 2021. HSBC as a corporation was also prosecuted under the corporate liability rule.
Naked short selling is a type of credit transaction where shares are sold first and borrowed later. Article 180 of the Capital Markets Act prohibits all short selling except for 'short selling using pre-borrowed shares' (borrowed short selling).
The prosecution believes that Hong Kong HSBC engaged in naked short selling to save costs related to borrowing shares for short selling and to ensure that some borrowed shares were not left unsold.
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