SOUTH Korea’s financial watchdog has recommended imposing a fine of at least 10 billion won (S$7.7 million) each on HSBC Holdings and BNP Paribas for so-called naked short selling, which is considered illegal in the country, according to two sources familiar with the matter.

The nation’s Financial Supervisory Service (FSS) made the recommendation to the Securities and Futures Commission under regulator Financial Services Commission (FSC) , said the sources who requested anonymity discussing private matters.

Naked short selling is a practice that involves selling shares without borrowing them first.

The five-member commission led by FSC vice chairman Kim So-young discussed the fines during a meeting on Wednesday but could not reach a conclusion, according to one of the sources. The commission plans to finalise the fines as soon as possible, said the source. The final amount of fines may change during discussions later, both sources said.

A FSS spokesperson declined to comment. A spokesperson at the FSC also declined to comment, adding the commission decided that “further discussions” are needed.

HSBC and BNP did not immediately respond to e-mailed requests for comment.

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If imposed, the fines would be the country’s first such penalties on global investment banks for conducting naked short selling. In addition, they would represent a record to be levied on illegal short sellers, following a 3.87 billion won fine imposed on Erste Asset Management earlier this year.

The development also follows a decision on Wednesday by Korean regulators to slap combined fines of two billion won on three unnamed global hedge funds for violations of capital market law including illegal short selling and unfair trades. The penalties came after authorities’ announcement last month of a full ban on short selling until the end of June 2024, stating that they had discovered “massive” illegal naked short-selling by global investment banks in local stocks. BLOOMBERG