South Korea finds illegal stock short sales by seven more banks

SEOUL (Reuters) – South Korea’s market watchdog said on Monday it had found breaches of short-selling rules by seven more banks in the domestic stock market as part of a full-scale investigation into trading practices at foreign investment banks.

Last November, South Korea introduced a ban on short selling of stocks in the domestic market, after it found illegal trading by two foreign firms in October, and launched a special investigation to look into trading practices at other banks.

In its interim investigation results released on Monday, the Financial Supervisory Service (FSS) said it had so far found illegal trading by nine banks, including two that have already been fined, out of 14 foreign investment banks, with trading violations totalling 211.2 billion won ($154.76 million).

The other five were still being investigated, the FSS said, without naming any of them.

South Korea’s Chosun Ilbo daily reported on Thursday that financial authorities had notified Credit Suisse AG that it could face 50 billion won in fines over allegations it breached short-selling rules.

The notice was sent to the South Korean and Singaporean units of the bank, the report said, citing industry sources.

The FSS and UBS, which took over Credit Suisse in 2023, declined to comment on the report.

In South Korea, the Capital Markets Act bans “naked” short selling of stocks, in which an investor short sells shares without first borrowing them or determining they can be borrowed.

The FSS said it is cooperating with authorities in Hong Kong on its investigation and plans to visit the city this month for a meeting to explain South Korea’s short-selling regulations.

Last month, the watchdog prepared a new monitoring mechanism to better detect short-selling breaches in the stock market.

South Korea has said the short-selling ban, imposed through the first half of this year, will stay in place until adequate measures are prepared to prevent illegal trades.

($1 = 1,364.6800 won)