South Korea Imposes $1.54 Million Fines on Global Hedge Funds for Market Breaches

To
maintain market integrity, South Korea has imposed collective fines totaling
two billion won ($1.54 million) on three undisclosed global hedge funds for
violations of capital market laws. The announcement was made jointly by the
country’s Financial Services Commission and Financial Supervisory Service.

The
fines were levied against the hedge funds for various infractions, including
illegal short selling and unfair trades. South Korean authorities, in a bid to
purge illegal short-sellers from the local stock market, are actively
addressing violations and fortifying regulations.

This
development follows the regulatory proposition in October where authorities
proposed similar punitive measures for two unnamed global investment banks
accused of “routinely and intentionally” violating relevant rules.
South Korean financial watchdogs are intensifying efforts to deter and penalize
entities engaging in market manipulations.

Last
month’s announcement of a full ban on short selling until the end of June 2024
reflects the gravity of the situation. Authorities revealed the discovery of
“massive” illegal naked short-selling activities by global investment
banks in local stocks, prompting the stringent measure to safeguard market
stability.

The
South Korean public holds a deeply negative perception of such trading
practices. Local retail traders have not hesitated to voice their discontent,
staging protests against these activities intermittently. Additionally, there
have been sporadic coordinated attempts by retail traders to influence stock
gains in response to short selling activities.

According
to the authority, regulatory bodies are signaling that any transgressions of
market rules, especially those involving global hedge funds, will be met with
severe penalties.

The
regulatory crackdown in South Korea aligns
with a broader global trend of increased scrutiny on financial market
practices. As regulators worldwide heighten their focus on ensuring market
fairness, hedge funds and investment banks may face escalated oversight and
consequences for non-compliance.

South Korea has imposed combined fines of two billion won ($1.54 million) on three unnamed global hedge funds for violations of capital market law including illegal short selling and unfair trades https://t.co/gkHbaI8dAJ

— Bloomberg (@business) December 20, 2023

South
Korea Enforces Complete Ban on Short Selling: Motivations and Debates

Finance Magnates reported earlier
that South
Korea has implemented a complete ban on short selling, with the Head of the
Financial Supervisory Service, Lee Bok-hyun, citing rampant illegal short
selling as the motivation. While defended as necessary to combat financial
misconduct, the ban raises debates about its implications and potential political
motivations.

Lee
emphasizes the need to uproot illegal practices and introduces the ban as an
emergency measure to address widespread illegality in the market. Critics
suggest political motives, and concerns arise about its impact on South Korea’s
international rankings. Proponents argue it is necessary for market integrity,
while opponents express concerns about hindering market efficiency and limiting
investment strategies. The ban has been seen as eliminating a valuable source of
market information.

According
to the authority, regulatory bodies are signaling that any transgressions of
market rules, especially those involving global hedge funds, will be met with
severe penalties.

— Bloomberg (@business) December 20, 2023