Korea slaps Credit Suisse with largest ever short-sale penalty

South Korea's financial regulator said on Wednesday it has officially imposed Credit Suisse Group AG and its affiliate a combined 27.2 billion won ($19.6 million) fine, the largest penalty on naked short sales of Korean listed stocks since the authorities introduced the penalty system in April 2021.

Korea’s Financial Services Commission (FSC) has fined Switzerland-based Credit Suisse, which was merged into UBS Group AG last year, and Credit Suisse Singapore Ltd. for shorting equities without first borrowing them, the financial watchdog said.

Credit Suisse Group, which ordered the sale of 60.3 billion won worth of shares in 20 Korean companies between April 2021 and June 2022, has been fined 16.9 billion won, according to FSC’s statement.

Its Singaporean affiliate ordered 35.3 billion won worth of shares in five companies from November 2021 to June 2022. For its naked short selling, the FSC has fined the affiliate 10.2 billion won.  

The combined penalty for the two companies is more than 11 times the fine imposed on 28 short-selling cases identified in 2022.

The FSC plans to tighten regulations on naked short selling, which is illegal in Korea, and build an online system to strengthen the prevention of shorting stocks without borrowing them first.

In May, the financial watchdog announced it had uncovered 211.2 billion won worth of naked short sales of Korean stocks by Credit Suisse, Nomura Securities Co., BNP Paribas SA, HSBC Holdings plc and five other global banks from 2021 to 2023.

Of the total, Credit Suisse and Nomura made up more than half, together accounting for 116.8 billion won.

BNP Paribas and HSBC, which have shorted 55.6 billion won worth of Korean shares without first borrowing them, were slapped with a combined 26.52 billion won worth of fines last December.  

The other five unidentified global banks, which are under investigation, have executed 38.8 billion won worth of naked short sales.

The FSC expects the financial penalties for the nine banks to exceed 100 billion won.

Write to Han-Gyeol Seon at always@hankyung.com

Jihyun Kim edited this article.