The Securities and Futures Commission (SFC) under the Financial Services Commission held a regular meeting on the 18th and imposed a penalty surcharge of 13.67 billion won on global investment banks Barclays and Citi for allegations of naked short selling.
Short selling is an investment technique that involves selling stocks that one does not own. Borrowing stocks from others and selling them with the expectation that the stock price will fall, then buying the stocks back when the price has dropped to repay the stocks is considered legal short selling. However, naked short selling, which does not involve borrowing stocks, is illegal.
Barclays and Citi faced issues for using the 'post-borrowing' method for short selling after the fact. Previously, the Financial Supervisory Service transferred a penalty surcharge proposal of 70 billion won for Barclays and 20 billion won for Citi to the SFC.
However, the SFC determined the final penalty surcharges for both Barclays and Citi, considering that there was no intent and that they did not default on settlements. A Financial Services Commission official noted, "Both investment banks also made efforts to prevent illegal short selling, which was reflected in the final calculation of the penalty surcharges."
Financial authorities have been consecutively imposing large penalty surcharges on global investment banks related to illegal short selling. In July, a penalty surcharge of 27.2 billion won was imposed on two subsidiaries of Credit Suisse (now UBS). At the end of last year, penalty surcharges of 26.5 billion won were also imposed on BNP Paribas and HSBC.
As issues regarding illegal short selling surfaced, financial authorities have completely banned short selling since November of last year. After establishing a system to monitor illegal short selling, financial authorities plan to resume short selling transactions beginning at the end of March 2025.