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South Korea imposes penalties on two Hong Kong banks for engaging in naked short-selling.

South Korea to Impose Heavy Fines on Hong Kong Banks for Naked Short-Selling

South Korea’s Stock Market Watchdog Discovers Violations by Hong Kong-based Investment Banks

South Korea’s stock market watchdog has recently uncovered violations committed by two Hong Kong-based investment banks. These violations involve naked short-selling, a practice that is prohibited by the Capital Markets Act in South Korea. The Financial Supervisory Service (FSS) revealed that the two unnamed investment banks engaged in naked short-selling transactions amounting to a total of 40 billion won ($29.58 million) and 16 billion won, respectively. As a result of these violations, the banks are expected to face record fines.

Understanding Naked Short-Selling

Naked short selling occurs when an investor sells shares without first borrowing them or confirming their availability for borrowing. This practice is deemed illegal in South Korea and goes against authorities’ efforts to create a more favorable environment for foreign investors.

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Lengthy Violations and Potential Consequences

The violations committed by these global banks spanned over extended periods. One bank’s violation took place for a duration of nine months through May 2022, while the other bank violated the regulations for five months through December 2021. The FSS emphasized the severity of these violations and stated that they are likely to result in unprecedented fines. The watchdog also expressed the need to prevent such violations from recurring and announced its intention to investigate the practices of other similar investment banks.

Implications for Foreign Investors

These violations come as a setback to the efforts made by South Korean authorities to attract more foreign investors. To ensure a more favorable environment for foreign investment, it is crucial to prevent such misconduct and maintain transparency in the stock market.

The Way Forward

It is essential for the FSS to take appropriate actions to address these violations and deter other financial institutions from engaging in similar practices. By enforcing strict penalties, South Korea aims to maintain the integrity of its stock market and protect the interests of all investors.

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