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[Alpha Biz=(Chicago) Reporter Kim Jisun] Two global investment banks have been caught by financial regulators for illegally selling 110 Korean companies, including Kakao and Hotel Shilla, without borrowing.
The Financial Supervisory Service announced the results of its investigation into illegal short selling on the 15th.
According to the FSS and financial investment industry officials, Hong Kong-based BNP Paribas reportedly ordered a naked public sale worth 40 billion won for 101 stocks, including Kakao, between September 2021 and May 2022.
BNP Paribas ran a number of departments and lent shares to each other if necessary, but did not enter them into the internal system. As a result, the shares owned were calculated in duplicate. However, even though they knew the amount of payment was insufficient, they left it unattended and filled it with post-borrowing. It has been revealed that the domestic trust securities company, an affiliate of BNP Paribas, has also received the order even though it was aware of this.
Short selling is an investment method that borrows and sells stocks in anticipation of a fall in stock prices and then buys them back and repays them when actual stock prices fall. However, non-borrowing short selling without borrowing stocks is a violation of the Capital Markets Act.
HSBC was found to have submitted naked short selling orders worth 16 billion won for nine stocks, including Hotel Shilla, from August to December 2021.
The FSS investigation revealed the customary illegal short selling of foreign IBs, which individual investors have consistently raised suspicions about. The Financial Supervisory Service plans to impose the largest fines on the two financial firms after introducing the penalty system. So far, the maximum penalty was 3.87 billion won for foreign financial investment companies in March. Currently, the financial companies are said to have admitted to illegal short selling and have started to improve the system.
Authorities will also take sanctions, such as fines, as they have been confirmed to be intentional by local trust securities firms.
AlphaBIZ 김지선(stockmk2020@alphabiz.co.kr)
