Bloomberg News reports that Morgan Stanley’s practices related to stock short selling have come under scrutiny by South Korea. The inspection is a part of the greater effort by the regulator so that it can clamp down on the bets against the equities, as per an individual familiar with the matter.
The Financial Supervisory Service is also planning to examine the Bank of America Merrill Lynch related to how it conducts stock short sales, revealing the person who requests anonymity since the probe is still ongoing. The main reason why Morgan Stanley was singled out since this New York-based bank has a great influence on the market.
The spokesperson of Morgan Stanley refused to comment, and so did the spokesperson Mark Tsang of the Bank of America.
South Korea imposes restrictions on certain activities related to short selling despite doing away with many curbs in May 2021 and letting investors sell borrowed shares on Kospi 200 Index and Kosdaq 150, which is a small-cap Index. The stocks on the two indices have been representing around 90% of the market value of Kospi. The nation introduced a ban as early as 2020 so that the markets could be tamed which have been impacted by the pandemic.
According to data released by the Korea Exchange, Bloomberg News reports that foreign investors constitute almost 70% of short selling by trading in August on the benchmark Kospi. Morgan Stanley is the largest short seller accounting for 18% in South Korea.
FSS Governor Lee Bokhyun stated on Monday in a meeting that the country will set up an investigation team to inspect the stock short selling so that unfair and illegal trades can be rooted out. Since the prosecutor turned politician, Yoon Suk Yeol took over at the beginning of this year, authorities have enhanced their calls for stamping out naked short sales, which is a practice that involves the sale of stocks without having borrowed them first. The other types of illegal activities related to short selling are also being investigated.
In 2018, Goldman Sachs International imposed a fine of $7.5 billion, $5.5 million for the sale of 156 Korean stocks without having borrowed the securities first as needed by law, which the bank stated was a mistake by an employee of the company. MoneyToday earlier reported the inspection.
