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.

Illegal Short-Selling in South Korean Markets

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.