South Korea fines BNP, HSBC $20 million for naked short selling

South Korea has decided to impose a total fine of 26.5 billion won ($20.4 million) on BNP Paribas SA, its domestic brokerage unit and HSBC Holdings Plc for naked short-selling, according to a person familiar with the matter.

BNP Paribas was ordered to pay 11 billion won for naked short-selling, which is illegal in South Korea, while its local brokerage unit was penalized 8 billion won, according to the person, who requested anonymity discussing private matters. HSBC was fined 7.5 billion won for naked short-selling, the person said.

South Korea’s Financial Services Commission said Monday that it had decided to impose record-high fines on two global banks and one of the firms’ local units, without identifying their names or the breakdown of the penalties. Chosun Biz earlier reported the individual amounts of the fines for the three entities.

“The violations were a grave matter that hurts the market order and investor trust,” the Securities and Futures Commission, which functions under the FSC, said in a statement Monday following its decision. The naked short-selling transactions by the three parties, which lasted for months, were viewed to be “intentional,” it added.

The FSC will also ask prosecutors to investigate the two international investment banks.

BNP Paribas and HSBC representatives in Hong Kong did not respond to emails seeking comments on the holiday Monday, while BNP Paribas’s Korea brokerage unit did not respond to phone calls.

Bloomberg News reported last week that South Korea was seeking at least 10 billion won in combined fines from BNP Paribas SA and HSBC Holdings Plc for naked short-selling “- a practice that involves selling shares without borrowing them first.

The decision is the latest in efforts by authorities to weed out illegal short-sellers from the local stock market, and comes after authorities in November announced a full ban on short-selling until the end of June 2024. The regulator said at the time that it had discovered “massive” illegal naked short-selling by global investment banks.

The FSC recently slapped a combined fine of 2 billion won on three unnamed global hedge funds for violations of capital markets law, including illegal short-selling and unfair trades. Bloomberg News has reported that one of the funds was Segantii Capital Management Ltd.

Earlier this year, a penalty of 3.9 billion won was imposed on Erste Asset Management, which was among the initial companies to face bigger fines under the new and more stringent rules on short-selling.

Public perception of short-sellers in Korea remains deeply negative, with local retail traders having staged protests against these activities from time to time. They have also made sporadic coordinated attempts to drive gains in stocks targeted by short-sellers, leading to increased volatility.