Financial Services Commission Imposes First Penalty for Illegal Short Selling... 6.05 Billion KRW Fine on Two Foreign Firms

The Financial Services Commission has decided to impose a total fine of 6.05 billion KRW on two foreign financial companies for illegal short selling. This is the first case where the penalty for short selling violations, which had previously been limited to fines in the tens of millions of KRW, was significantly increased and imposed as a surcharge.

The Securities and Futures Commission under the Financial Services Commission held a regular meeting on the 8th and announced that it resolved to impose surcharges of 2.18 billion KRW and 3.87 billion KRW respectively on the two foreign financial companies. This is the first case of sanctioning since the amendment of the Capital Markets Act (effective April 2021), which strengthened the penalty system for short selling violations from fines to surcharges. The names of the problematic securities company and the operating company will not be disclosed until the minutes are released in about two months. A Financial Services Commission official explained, "We discussed reasonable sanction levels at the Capital Market Investigation Deliberation Committee and the Securities and Futures Commission meetings and resolved to implement effective sanctions in line with the purpose of the amended Capital Markets Act."

Company A, which was fined, pre-registered shares to be issued through a free capital increase in its internal system for fund valuation purposes. Subsequently, it recognized these as sellable shares and placed sell orders for common shares worth 25.14 billion KRW that the fund did not own, violating the regulation restricting uncovered short selling. Company B mistakenly entered borrowing details of a different stock with a similar name into its balance management system. Based on the overstated balance, it placed sell orders for non-existent shares worth 7.329 billion KRW, violating the regulation restricting uncovered short selling.

Until now, only fines (up to 100 million KRW) were imposed for violations of short selling regulations such as uncovered short selling, which was criticized for lacking effectiveness and having weak deterrent effects. Accordingly, the Capital Markets Act was amended to allow recovery of unfair gains through surcharges and to enable criminal penalties such as imprisonment or fines for short selling violators. A Financial Services Commission official stated, "We will continue to operate a strong market surveillance, detection, and investigation system for short selling violations in close cooperation with related agencies and maintain strict sanctions against violations."

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