South Korea slaps punishment on financial giants for illegal short selling

This incident is like a boulder into the lake of the financial market, arousing thousands of waves, causing widespread concern in the global financial community.

South Korea's punishment of financial giants has a deep background. Since November 2023, South Korea has implemented a total short-selling ban aimed at curbing illegal short selling in the market. In the meantime, South Korea's financial regulators have launched a full-scale investigation into short-selling by global investment banks. The investigation revealed that 14 banks had violated the rules, and the four institutions that were fined this time were the focus of the investigation. South Korea has maintained zero tolerance for "naked short selling" - short selling without prior borrowing or confirmation that shares can be borrowed - which is seen as a "cancer" that increases market volatility and harms retail investors and is explicitly prohibited under the Capital Market Law.

Retail investors play an important role in South Korea's financial market. During the 18% plunge of the South Korean Composite Index in 2022, retail investors protested the unfairness of the short-selling mechanism on a large scale, which directly prompted President Yoon Seok-yue to order a thorough investigation, which shows the importance and demands of the public for market fairness. The Korean regulator's crackdown on illegal short selling is also aimed at balancing the competitive environment between retail investors and institutions and maintaining market fairness and stability.

South Korea's regulatory approach is undergoing a profound shift. In the past, it was more about "blaming after the fact", but now it has shifted to "technology blocking". The Short-selling System Improvement Plan announced in June 2024 is an important embodiment, and South Korea plans to establish an electronic settlement system to block naked short selling in real time, and requires institutional investors to improve their internal balance management system. At the same time, the severity of fines has also been increased significantly, from 3-5 times to 4-6 times of illegal profits, and heavier penalties have been introduced. This series of measures shows that the Korean regulator's determination and strength to crack down on illegal short selling is growing.

However, South Korea's move has also sparked some controversy. Some critics argue that while the short-selling ban, extended until March 2025, has somewhat curtailed irregularities, it could undermine market efficiency in the long run. The short-selling mechanism has an important function in the financial market such as price discovery, and banning short selling will distort the price discovery mechanism, making it more difficult for the Korean stock market to be included in the MSCI developed market index, thus affecting foreign capital inflows. For example, when there are overvalued stocks in the market, a reasonable short-selling mechanism can prompt the stock price to return to a reasonable level, while the existence of a ban may hinder this process.

The incident also reflects a trend in global financial regulation. Under the background of financial globalization, the trading behavior of transnational financial giants is becoming more and more complex, and the financial game between emerging markets and developed countries is becoming increasingly fierce. Countries are actively exploring how to find a balance between financial innovation and risk prevention, and constantly reshaping the rules of the game in the capital market. The European Union launched the "Digital Asset Market Act" and the US SEC frequently investigated Wall Street, just like the punishment of the financial giants in South Korea, all of them are to maintain the stability and fairness of the domestic financial market.

The punishment of jpmorgan Chase and other financial giants by South Korea's financial regulators is an important action in the supervision of the country's financial markets. It not only has a profound impact on the order and fairness of South Korea's domestic financial market, but also provides a new case and thinking direction for global financial regulation.