South Korea discovers illegal trading by more banks, potential fines reach 211.2 billion won

South Korea’s market regulator uncovers short-selling violations by seven additional foreign investment banks, following a ban imposed last November. Financial Supervisory Service revealed nine banks involved in illegal trading, with potential fines totaling 211.2 billion won.

As part of an extensive probe into trading practices of foreign investment banks in South Korea, the country’s market regulator disclosed on Monday that it has uncovered violations of short-selling regulations by seven additional banks operating in the domestic stock market.

This revelation comes after South Korea imposed a ban on short-selling of stocks in its domestic market last November. The ban was prompted by the regulator’s earlier findings of unlawful trading activities by two foreign firms in October, which subsequently led to the launch of a special investigation to scrutinize trading practices at other banks.

In its interim findings released on Monday, the Financial Supervisory Service (FSS) revealed instances of illegal trading involving nine banks, including two that have already incurred fines. Out of the 14 foreign investment banks under scrutiny, trading violations amounting to 211.2 billion won ($154.76 million) have been identified thus far.

The FSS disclosed that investigations into the remaining five banks are ongoing, refraining from disclosing their identities.

Recent reports from South Korea’s Chosun Ilbo daily indicate that Credit Suisse AG has been notified by financial authorities of potential fines amounting to 50 billion won. These fines are linked to allegations of breaching short-selling regulations.

The revelations underscore heightened regulatory scrutiny within South Korea’s financial sector, with authorities diligently monitoring trading activities to ensure compliance with established rules and regulations.

In preparation for stricter oversight, South Korea’s market watchdog unveiled a new monitoring mechanism last month aimed at more effectively detecting violations of short-selling regulations in the stock market.

The country has stated that the short-selling ban, initially imposed for the first half of 2024, will remain in effect until adequate measures are put in place to prevent unlawful trading activities.

Seeking to restore market integrity, South Korean authorities have taken a firm stance, extending the prohibition on short-selling of stocks in the domestic market beyond its initial timeframe. This extension will continue until robust safeguards are implemented to curb illegal trade effectively.