Financial Supervisory Service Launches Special Short-Selling Investigation Team... Comprehensive Probe into Illegal Activities

The Financial Supervisory Service (FSS) announced on the 31st that it will form a special short-selling investigation team and conduct a full-scale investigation into habitual illegal activities to eradicate illegal short selling and restore trust in the capital market.

The special short-selling investigation team will be composed of 20 members, including one team leader, one team, and two divisions, mainly consisting of experienced investigators within the FSS, English-proficient personnel, and IT experts. The team will expand the existing team-level organization to a department-level one and will share responsibilities for investigating global investment banks (IBs) and compiling a short-selling dictionary.

The special short-selling investigation team will begin its role from the 6th of next month. The FSS stated, "We will allocate sufficient personnel and budget to ensure a swift and efficient investigation of illegal short selling, especially targeting foreign investors."

Additionally, the FSS will conduct a full-scale investigation into illegal short selling by global IBs. The investigation will target top global IBs in domestic short-selling transactions, focusing on trades since the partial resumption of short selling in May 2021. The investigation paradigm will shift from a stock-centered approach to an institution (investor)-centered one, and a full investigation of short-selling transactions during specific periods will be conducted. Furthermore, the FSS will check whether domestic securities firms, which receive short-selling orders from global IBs, fulfill their obligations to accept such orders. During the investigation, the FSS plans to closely examine the likelihood of abuse of short selling by the ultimate investors, who are the actual investment entities behind the short-selling transactions.

The FSS will also continue efforts for preventive measures by conducting effective international investigations in cooperation with foreign supervisory authorities and holding meetings with foreign IBs located overseas.

Previously, the FSS announced that two large global IBs based in Hong Kong were caught engaging in deliberate naked short selling worth 56 billion KRW in the domestic capital market. On the 17th, at the National Assembly's Political Affairs Committee audit, FSS Governor Lee Bok-hyun emphasized, "The recently detected illegal short selling cases are too disruptive to the market to be seen as isolated incidents, so fundamental measures must be considered," adding, "Special measures are necessary, and responses at the level of inter-ministerial cooperation are required."

Governor Lee also expressed a strong intention to impose strict penalties, stating, "We will take stern action upon discovering illegal activities such as illegal short selling and self-serving acts by executives and employees of financial investment companies."

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