Two banks face record fines

South Korea's financial watchdog is proposing the imposition of record fines on two global investment banks for "routinely and intentionally" engaging in naked short-selling, which is considered illegal in the nation.

The Hong Kong-based units of the two banks conducted naked short sales in several securities between 2021 and 2022 and could have reaped extra profits from them, the Financial Supervisory Service said in a statement, without naming them. Naked short-selling is a practice that involves selling shares without even borrowing them first.

While authorities have uncovered and penalized money managers for illegal short-selling in the past, it's the first time such violations have been found at global banks engaged in transactions in Korea, the FSS said.

One of the two brokerages illegally shorted 101 stocks with transactions totaling 40 billion won (HK$231.7 million) between September 2021 and May 2022, according to the FSS. The other did the same with nine stocks for 16 billion won during the August-December 2021 period while hedging its swap contracts with overseas funds.