The Securities and Futures Commission imposes fines of 680 million KRW on 10 foreign financial firms for naked short selling

[Asia Economy Reporter Ji Yeon-jin] The Securities and Futures Commission held its 4th regular meeting on the 24th and decided to impose a total fine of 685 million KRW on 10 overseas investment discretionary management companies found to have engaged in naked short selling.

It was confirmed that from January 2018 to July 2019, these companies conducted so-called naked short selling by selling stocks of domestic listed companies that they did not own during their trading activities.

One investment discretionary management company was investigated for placing sell orders again under the mistaken belief that the stocks sold, which were not reflected in their balance, were still held. Another investment discretionary management company was found to have placed sell orders in error by misunderstanding the listing date of new shares after participating in a paid-in capital increase, even though shareholders can sell new shares only after paying the capital increase and the new shares are listed. The Securities and Futures Commission explained, "We judged that there was a serious violation by the financial companies in submitting orders without confirming the available order quantity in advance, which is a fundamental duty of care as financial investment companies."

Additionally, cases were detected where sell orders were submitted for stocks not owned due to the mistaken belief that they held the stocks while trading over-the-counter derivatives called 'Contract for Difference (CFD)', which are traded for arbitrage purposes based on price fluctuations.

In particular, there were cases where naked short selling orders were intentionally submitted and the sold stocks were repurchased and settled through large-volume trading outside regular hours. This company was revealed to be an overseas brokerage firm that executed naked short selling of the relevant stocks to compensate losses to the counterparty.

The financial authorities plan to detect violations of the naked short selling ban more frequently, changing from every six months to every month, and to conduct prompt investigations and take measures regarding short selling regulation violations.

The investigation into short selling regulation violations by market makers is expected to be completed by next month.

A Securities Commission official stated, "From April 6, short selling investors will be required to retain loan transaction information for short selling purposes for five years, and must submit the relevant data upon request by financial authorities," adding, "As penalties including fines and criminal sanctions for illegal short selling are being strengthened, we urge special caution to prevent violations."

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