GIC’s third-party agent pays $105,000 fine for short-sale violation in South Korea

SINGAPORE - The third-party agent of Singapore’s sovereign wealth fund GIC has paid a 120.6 million won (S$105,000) fine for naked short-selling, according to the documents filed by South Korean regulators.

Naked short-selling is the practice of selling a stock short without first borrowing the shares or arranging to borrow them, creating a “failure to deliver” of the shares by the settlement date, unlike regular short-selling, where shares are located and delivered.

GIC was among six asset managers and securities firms that were fined a combined 3.97 billion won by the country’s Securities and Futures Commission (SFC) for naked short-selling, according to a Jan 19 report in The Korea Times.

For GIC, the incident occurred in 2022 and involved a sell order for 8,415 shares of luxury hotel chain Hotel Shilla worth 666.1 million won.

In response to queries from The Straits Times, GIC said on Jan 22: “The incident was due to the operational lapses, errors and breaches by GIC’s third-party agent of its contractual arrangement with GIC, which resulted in the short sale violation.”

It added: “The agent has acknowledged its responsibility and liabilities and accepted full accountability to GIC for its lapses to the Korean regulator.”

It has fully borne and paid the financial penalty for and on GIC’s behalf, which was accepted by the South Korean regulator.

SFC documents showed that the regulator had cut GIC’s fine by 50 per cent to 120 million won. It said that GIC’s standing as a foreign public institution made “involvement in unfair trade and non-payment of dues highly unlikely” and it noted “the fact that there were no gains from violations and only losses”.

GIC told ST it will continue to review and monitor its ongoing operational processes with all of its third-party agents to ensure that such operational lapses do not recur.

It added: “GIC is a long-term investor and does not engage in uncovered short sales. We have been investing in Korea for over two decades, and it remains an important market for us.”

In its report, The Korea Times said that the fines on the six firms were large in scale compared with previous sanctions on similar violations, where the penalties were “negligible” in size and impact.

It indicates a tougher regulatory stance by the South Korean authorities, with more “zero tolerance” enforcement, the paper said.

The other sanctioned asset managers include Canada’s Alberta Investment Management Corp, US-based Invesco Capital Management, Northern Trust’s Hong Kong operation, Shinhan Asset Management and Norway-based Pareto Securities.

Shinhan Asset Management was fined after the regulator found that it had placed sell orders for 5,000 shares of EcoPro stocks it did not own.

The asset manager that faced the heaviest penalty was Pareto Securities, which was fined 2.26 billion won for selling 178,879 shares of Samsung Electronics common stocks without holding them.