Korea FSS Fines Four Foreign Fund Managers for Naked Short Selling

One firm was fined KRW 360mn for failing to borrow KRW 13mn worth of stock prior to short-selling, a penalty of more than 27 times the amount short-sold.

The FSS (Financial Supervisory Service) has fined four foreign managers and pension funds KRW 730 million (USD 627,000) for violating Korea’s ban on naked short selling.

The violations occurred prior to the March ban on short-selling in the country.

The four firms – which were not named – erroneously failed to conclude their stock borrowing contracts and ensure they were in possession of the stocks prior to submitting their short sell orders.

The violations were detected by the stock exchange in its regular course of market monitoring,

One of the pension funds was fined KRW 360 million for failing to borrow KRW 13 million worth of stock prior to short-selling. The penalty is more than 27 times the amount short-sold.

The FSS said it will strengthen its monitoring and supervision to stamp out naked short-selling, including through imposing sanctions “as strict as possible”, within the existing limits.

Earlier this month, lawmakers proposed legislative changes to strengthen the penalties for naked short selling. Under the bill, unauthorised short selling would be subject to penalties up to 300 percent of profits obtained or losses avoided, and violations will also be punishable criminally with one year or more in prison.

The FSS reminds investors to check their stock balances prior to submitting short-selling orders and to “be careful” not to violate the ban on naked short-selling. Financial firms should have internal controls in place to prevent naked short selling.