[Photo provided by Financial Service Commission]
South Korea’s financial authority on Wednesday fined Goldman Sachs International 7.5 billion won ($6.67 million) for naked short selling which is banned in the country.
The Securities and Futures Commission of the Financial Service Commission (FSC) said the British unit of Goldman Sachs violated local rules by conducting short sales worth 40.1 billion won in May without securing underlying assets first.
The company was found to have shorted 96 stocks, 13 from the main Kospi bourse and 83 from the junior Kosdaq market, from May 30 to 31. Of them, 2,450,000 shares did not get delivered on time.
Short selling is an act of borrowing shares then later selling them with hopes of capitalizing on an anticipated decline in the share price. Naked short selling, which is a practice of selling stocks that have not yet been borrowed, has been banned in Korea since 2008 when local securities markets were heavily battered from short selling in the wake of the global financial crisis.
Investigations showed that the Seoul branch of Goldman Sachs had received short-sale orders from Goldman Sachs International but executed the transactions without properly securing the assets. Goldman Sachs had claimed its late delivery was not intentional but an order error.
Korean financial authorities sharply raised the fine from the initial sum of around 2 billion won to curb abusive profiteering through short sale on insider tips.
The Financial Supervisory Service in June announced a plan to impose stricter penalties against illicit short selling that can mostly hurt retail investors. Legislative efforts to revise the capital market law are currently underway to ensure short-sale violators face up to 10 years in prison or a penalty equivalent to 150 percent of the ill-gotten gains.
By Jin Young-tae and Kim Hyo-jin
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]