Morgan Stanley’s short selling practices inspected in S Korea

Bloomberg

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.
The Financial Supervisory Service (FSS) also plans to examine Bank of America Merrill Lynch over how it conducts stock short sales. Morgan Stanley was picked due to the New York-based bank’s big influence in the market, the person said.
South Korea restricts some types of short-selling activities even after doing away with most curbs in May 2021 and allowing investors to sell borrowed shares on the Kospi 200 Index and the small-cap Kosdaq 150. Stocks on the two indexes represent almost 90% of Kospi’s market value. The nation introduced a ban in early 2020 to tame
markets hit by the pandemic.
Foreign investors accounted for about 70% of short selling by trade on the benchmark Kospi in August, according to Korea Exchange data. Morgan Stanley is the biggest short seller in South Korea, accounting for about 18%.
FSS Governor Lee Bokhyun said in a meeting Monday that the nation will 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 ($5.5 million) for selling 156 Korean stocks without borrowing the securities as required by law, which the bank said was an error by a company employee.