Morgan Stanley’s stock short-selling practices are being inspected by South Korea as part of a broader effort by the nation’s financial watchdog to clamp down on bets against equities, a person familiar with the matter said.
The Financial Supervisory Service (FSS) also plans to examine Bank of America Merrill Lynch over how it conducts stock short sales, said the person, who asked not to be identified because they cannot comment on an ongoing probe.
Morgan Stanley was picked due to the New York-based bank’s big influence in the market, the person said.
Photo: AP
A Morgan Stanley spokesperson declined to comment, as did Bank of America spokesman Mark Tsang.
South Korea restricts some types of short-selling activities even after doing away with most curbs in May last year and allowing investors to sell borrowed shares on the KOSPI 200 Index and the small-cap KOSDAQ 150. Stocks on the two indices represent almost 90 percent of KOSPI’s market value.
The nation introduced a ban in early 2020 to tame markets hit by the COVID-19 pandemic.
Foreign investors accounted for about 70 percent of short-selling by trade on the benchmark KOSPI this month, Korea Exchange data showed.
Morgan Stanley is the biggest short-seller in South Korea, accounting for about 18 percent.
FSS Governor Lee Bok-hyun said in a meeting yesterday that the nation would set up a team to investigate stock short-selling to root out illegal and unfair trades.
Since prosecutor-turned-President Yoon Suk-yeol took office earlier this year, authorities have increased their calls to stamp out naked short sales, a practice of selling stocks without borrowing them first, and other types of illegal short-selling.
In 2018, Goldman Sachs International was fined 7.5 billion won (US$5.5 million) for selling 156 South Korean stocks without borrowing the securities as required by law, which the bank said was an error by a company employee.
The inspection was earlier reported by MoneyToday.
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