[2020 National Audit] Rep. Kim Byung-wook "171.3 Billion Illegal Short Selling... Penalties Only 8.9 Billion"

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] It has been revealed that over the past four years, foreign institutions caught conducting illegal short selling in South Korea amounted to 171.3 billion KRW, but fines imposed were only 8.9 billion KRW, leading to calls for stricter penalties.

According to data submitted to Kim Byung-wook, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, by the Financial Services Commission on the 12th, there were a total of 32 sanctions imposed for naked short selling from January 2017 to last month. Among them, 31 cases involved foreign financial firms and pension funds.

Of the 31 cases, 3 received warnings, and 24 were fined less than 100 million KRW (ranging from 7.5 million to 72 million KRW). Only 4 cases were fined over 100 million KRW (ranging from 120 million to 7.548 billion KRW). Although the total amount of naked short selling was 171.3 billion KRW, the total fines amounted to only 8.9 billion KRW.

Even considering factors such as the motive for the violation (whether intentional) and the number of naked short selling incidents when determining fines, voices argue that the penalties are excessively light compared to the disruption caused to market order. It is pointed out that even if violations occurred due to errors or mistakes by employees, strict measures are necessary to prevent recurrence. In fact, three foreign institutions were sanctioned twice each for naked short selling between 2017 and last month.

Short selling is an investment technique where investors sell stocks they do not own in anticipation of a price decline. Borrowing stocks first before short selling is allowed, but naked short selling is strictly prohibited under current law. This is because it can lead to settlement failures, be used for speculation, cause excessive stock price declines, and harm a large number of unspecified investors.

However, illegal short selling sanctions have reached 105 cases from 2010 to last month, indicating that violations have not been eradicated. Considering this, multiple bills to strengthen sanctions against naked short selling have been proposed in the National Assembly as amendments to the Capital Markets and Financial Investment Services Act.

Representative Kim Byung-wook has introduced a bill to impose fines up to three times the profits gained or losses avoided through illegal short selling (up to 1 billion KRW if profit calculation is difficult). He also proposed that to prevent naked short selling in advance, electronic information systems capable of preventing input errors should be installed when entering into stock lending contracts.

This content was produced with the assistance of AI translation services.