Supreme Court Confirms Acquittal of Hong Kong HSBC Over KRW 15.8 Bln Naked Short Selling

The Hong Kong branch of global investment bank HSBC, which was indicted on charges of carrying out naked short selling worth 15.8 billion won, has been finalized as not guilty by the Supreme Court.

On October 8, Supreme Court Division 2 (Presiding Justice Oh Kyung-mi) dismissed the prosecutors' appeal in the final trial regarding the HSBC Hong Kong branch's violation of the Capital Markets Act, finalizing the lower court's acquittal.

Short selling involves borrowing shares in advance and selling them when a stock price drop is anticipated, then buying them back at a lower price to return them when the price actually falls.

In South Korea, naked short selling—selling shares without borrowing them in advance—is classified as illegal.

Three individuals, including an HSBC Hong Kong branch trader identified as A, were indicted in March 2024 on charges of naked short selling 318,781 shares (worth 15.78468 billion won) across 9 listed companies, including Hotel Shilla, between August and December 2021.

The HSBC corporate entity was also put on trial under the joint penal provision.

This marked the first time anyone was sent to a criminal trial for violating regulations against naked short selling.

However, in February of last year, the first instance court acquitted the HSBC Hong Kong branch.

The first instance court acknowledged that naked short selling orders had been submitted, but ruled that the submission of orders alone could not be regarded as actual sales having taken place, requiring a trade to be executed.

The first instance court explained, "The most important reason the Capital Markets Act prohibits naked short selling is due to the risk of settlement failure," adding, "It is difficult to view that the risk of settlement failure has occurred based solely on the state of orders being submitted."

Although prosecutors appealed, the second instance court and the Supreme Court both maintained the not-guilty ruling.

The Supreme Court also ruled, "Considering the dictionary meaning of a sale and the overall provisions related to short selling, a 'sale' under the Capital Markets Act refers to cases where a sell quote and a buy quote match and a trade is concluded," and stated, "merely submitting a quote is insufficient."

Meanwhile, the employees indicted alongside the bank are currently staying overseas, and because the indictments and summonses have not been properly served, their first-instance trials are still ongoing.

(Photo: Yonhap News)
※ Please note: This article was translated by AI and may contain errors.