Full Breakdown
South Korean Supreme Court Acquits HSBC Hong Kong of Naked Short-Selling Charges
By Drooid · · How we work
Core Event
On October 8, the Supreme Court’s Second Division, presided over by Justice Oh Kyung-mi, dismissed the prosecution’s appeal and upheld the lower-court acquittal of HSBC’s Hong Kong branch on alleged violations of South Korea’s Capital Markets Act. The ruling finalizes the bank’s exoneration from charges that it engaged in naked short selling worth approximately 15.8 billion won (about $11 million).
Background & Context
South Korea criminalized “naked” short selling—selling shares without first borrowing them—in April 2021. The HSBC case marked the first criminal trial under the new provisions. In March 2024, three individuals, including a trader identified only as “A,” were indicted for allegedly short-selling 318,781 shares across nine listed companies (among them Hotel Shilla) between August and December 2021. The bank itself was also charged under a joint penal provision that holds corporations liable for employees’ actions.
The first-instance court acquitted HSBC in February of the preceding year, reasoning that the submission of sell orders without an executed trade did not satisfy the legal definition of a “sale.” The appellate court affirmed that decision, and the Supreme Court’s final judgment now confirms the interpretation.
Data & Statistics
- Alleged value of naked short-selling activity: 15.8 billion won (? $11 million).
- Number of shares involved: 318,781.
- Companies implicated: nine, including Hotel Shilla.
- Individuals indicted: three, one of whom was a HSBC Hong Kong trader (“A”).
Official Statements & Responses
The court also noted that the prosecution had failed to prove that HSBC employees acted with intent or conspiracy to breach the Capital Markets Act. It stressed that penal provisions must be interpreted strictly and should not be expanded by analogy, citing Article 443, Paragraph 1, Item 10 of the former Capital Markets Act.
Employees indicted alongside the bank remain overseas; because summonses have not been properly served, their individual trials are still pending.
Verbatim Quotes
- “The most important reason the Capital Markets Act prohibits naked short selling is due to the risk of settlement failure,” — “The most important reason the Capital Markets Act prohibits naked short selling is due to the risk of settlement failure,” — The first instance court
- “In South Korea, the price difference must be finalized before conducting short selling, and HSBC had a system that carried out the price difference finalization process ex post,” — “In South Korea, the price difference must be finalized before conducting short selling, and HSBC had a system that carried out the price difference finalization process ex post,” — The first instance court
Timeline
- August – December 2021 – Alleged naked short-selling transactions occur.
- March 2024 – Three individuals, including trader “A,” are indicted.
- February 2023 (reported as “last year”) – First-instance court acquits HSBC Hong Kong.
- October 8 – Supreme Court dismisses the appeal and confirms the acquittal.