'16 Billion Illegal Short Selling Allegation' Hong Kong HSBC Acquitted... Prosecutors "Considering Appeal" (Comprehensive)

After the Hong Kong branch of investment bank HSBC (Hongkong and Shanghai Banking Corporation), accused of illegal short selling worth 16 billion KRW, was acquitted, the prosecution announced it is considering an appeal.

On the 11th, the Seoul Southern District Prosecutors' Office stated, "We will closely analyze the judgment regarding the operation structure of HSBC's balance management system, whether the traders were aware of the illegal short selling, and the conspiracy relationships involved in this case, and review whether to appeal."

The Criminal Division 13 of the Seoul Southern District Court (Presiding Judge Kim Sang-yeon) acquitted HSBC, which was charged with violating the Capital Markets Act. The court ruled, "HSBC has a system that settles the difference after short selling, so the act of naked short selling is recognized, but there is no evidence that employees knowingly engaged in illegal short selling."

Three traders, including trader A 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's 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 joint liability regulation.

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 'borrowed stock short selling' (short selling using shares borrowed in advance).

The prosecution believes that Hong Kong HSBC engaged in naked short selling to save costs related to borrowing stocks for short selling and to avoid situations where some borrowed stocks could not be sold.