The Seoul offices of BNP Paribas Securities, HSBC Securities and HSBC Korea were all raided by investigators last week in connection with alleged illegal short selling practices.
Seoul’s District Prosecution Office is leading a criminal investigation into the investment firms for allegedly carrying out naked short selling – a practice which is illegal in South Korea and many other jurisdictions, including the EU and the US.
Naked short selling involves making a short sale without borrowing the stocks, or determining that the stocks can be borrowed, before selling them off.
The raid is the latest development in a government crackdown on illegal short selling. Authorities in South Korea implemented a blanket ban on all short selling in November in a bid to eradicate illegal activity in this area of trading.
President Yoon Suk Yeol called for tighter regulation of naked short selling, saying the practice makes it “difficult for the market to set a fair price and cause losses to retail investors, and also make[s] investors lose trust and move away from the market.”
BNP Paribas and HSBC have already received fines of a combined US$20.4bn for naked short selling from South Korean prosecutors, in December last year.
