BNP Paribas, HSBC Slapped with Record $20.3 Million Fine for Illegal Short Selling Transactions in South Korea

BNP Paribas and HSBC have faced severe penalties from South Korea's top financial regulator, the Financial Services Commission (FSC). This comes as a consequence of engaging in illegal short selling transactions over an extended period of time.

Korea Times reported that the FSC's Securities and Futures Commission, responsible for addressing unfair trade practices, decided on Friday after finding the two Hong Kong-based companies guilty of violating short-selling regulations under Korea's Capital Markets Act.

Record-Breaking Fine Imposed

While filing a complaint with the prosecution, the financial authorities imposed a staggering 26.5 billion won ($20.3 million) fine on BNP Paribas and HSBC for their violations, as per the Korea Herald. Since the introduction of the penalty system for short-selling violations in April 2021, this is the largest fine ever handed to financial institutions.

BNP Paribas Involved in Naked Short Selling

BNP Paribas' Hong Kong branch found itself at the center of the violation, engaging in naked short selling of 101 Korean stocks worth over 40 billion won between September 2021 and May 2022. Notably, the bank submitted shorting orders without first borrowing the shares. Naked short selling, a trading practice essentially banned in major countries since the late 2000s, included shorting stocks of prominent Korean tech company Kakao.

Financial authorities discovered that BNP Paribas continued the practice despite being aware of the insufficient quantity of shares available for selling. Moreover, an affiliated domestic securities company linked to BNP Paribas also faced serious allegations of violating the Capital Markets Act by accepting naked short selling orders without taking preventive measures.

HSBC's Unlawful Intent

HSBC, too, faced the consequences for engaging in illegal short selling practices. The bank placed naked short-selling orders totaling 16 billion won across nine Korean stocks, including Hotel Shilla, from August to December 2021. The Securities and Futures Commission concluded that HSBC exhibited an intent to commit unlawful acts by continuing to borrow shares after submitting orders over an extensive period, despite being fully aware that such practices violated Korean regulations.

The severe penalties imposed on BNP Paribas and HSBC are a stern warning to the financial industry. South Korea's financial regulator is committed to maintaining the integrity and fairness of the capital markets. The FSC's decisive actions aim to discourage further illegal short-selling attempts and reinforce adherence to the Capital Markets Act.

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