South Korea's top court clears HSBC in the first trial under its 2021 naked short-selling penalties
South Korea's Supreme Court upheld HSBC Hong Kong's acquittal on 15.8 billion won of alleged naked short sales, the country's first such criminal case. Its holding that an unexecuted sell order is not the offence gives the next prosecution a stricter test to meet.
The Investor · Invest desk
What happened
- Prosecutors indicted three people in March 2024, including an HSBC Hong Kong trader, over 318,781 shares in nine listed companies, Hotel Shilla among them, sold between August and December 2021.
- HSBC itself stood trial under a provision that holds companies liable for acts committed by their employees.
- The Supreme Court ruled that submitting a sell order that is never executed is not in itself illegal short selling, since that would treat an attempt as a completed act.
- The court also found that the specific violators and violations tied to the alleged orders had not been sufficiently proven.
Why it matters
- What it limits constraint A prosecutor bringing the next case needs executed sales with no borrow behind them, tied to named traders; a log of submitted orders does not make the offence under this ruling.
- Who's exposed exposure A bank charged through the employee-liability provision can be reached only after an individual employee's violation is proven, so a foreign broker's exposure runs through trader-level evidence.
- What it sets up precedent As the first prosecution under the April 2021 penalties to reach a final verdict, this reading of the law is where defence lawyers in any later case will start.
Next story · Invest · 23h ago
South Korea's FSC estimates 100,000 customer-data items exposed at 16 financial firms, Gopax among themConfirmed2 publishers
The indicted sales averaged about 49,500 won a share and roughly 1.75 billion won per company [22][23]. The first of them came in August 2021, four months after criminal penalties for illegal short selling were introduced [6][19].
Korean law bans selling shares without having borrowed them in advance [11], so the case turned on when the borrow has to exist. The trial court said that "borrowing must be confirmed before short selling takes place, and because HSBC had a system that completed that step after the fact, it is established that it conducted covered short selling" [4]. The top court's second division, presided over by Justice Oh Kyung-mi, placed that moment at execution, according to the Seoul Economic Daily [3][13]. Penal provisions must be interpreted strictly, the court held, and expanding them by analogy in a way that disadvantages the defendant runs counter to the principle of legality [14].
The acquittal rests on separate findings, and a conviction needed the prosecution to win all of them. The trial court found "no evidence to establish that the chief executive or the operator of the management system conspired to carry out naked short selling" [5]. It also found no evidence that the employees knew they were breaking local rules, Yonhap reported [8]. The appellate court upheld the acquittal before the Supreme Court made it final [9][2].
Lee & Ko, the firm that represented HSBC, said the decision "sets out guidelines on when naked short selling becomes subject to criminal punishment" [18]. The firm said the ruling "puts an end to the dispute over whether HSBC bears criminal liability for violating naked short-selling rules" [17]. Reaching that end took about 31 months from the March 2024 indictment, for sales that finished in December 2021, almost five years before the final ruling [20][21].
The facts limit how far those guidelines reach. HSBC had a system that completed the borrow [4]. A broker that sold and never borrowed would be judged on executed sales with nothing behind them, and the execution test does not excuse those. The court also framed its holding around the old statute: "There was no error in the lower court's judgment in misapprehending the legal principles on the establishment of a violation under Article 443, Paragraph 1, Item 10 of the former Capital Markets Act," it said [16]. Neither report describes how the current provision reads. The proof failure, finally, is a finding about one prosecution's file, and a better-built file could overcome it [15].
I think the stricter standard is real, and narrower than a defence firm's word "guidelines" suggests. The execution rule and the strict-construction rule are law the court stated; the findings about HSBC's systems and staff are facts about one bank. A conviction built on order-level evidence, or a current statute worded to reach unexecuted orders, would show the bar is lower than this ruling implies.
What to watch
- Whether prosecutors bring another naked short-selling case built on executed sales tied to named traders, and whether it ends in a conviction.
- How courts treat conduct charged under the current Capital Markets Act, as opposed to the former Article 443 provision the Supreme Court applied.
- Any amendment that makes a submitted but unexecuted naked short order punishable in itself, the conduct this ruling placed outside the offence.
Information, not investment advice. This story is general information about companies and markets, drawn from cited reporting. It is not a recommendation to buy, sell or hold any security; check the cited sources before acting.
Clarity's read
What the record supports and how the coverage leans. The claims behind it follow.
Reality
- Evidence72
- Adoption
- Not scored
- Hype gap+10
- Incentives30
- Confidence75
Perspective Coverage
3 publishers- Builder
- Builder 5%
- Operator
- Operator 53%
- Investor
- Investor 42%
Claim ledger
Ranked by verification strength, evidence, and original report placement.
- [1]
HSBC's Hong Kong unit was cleared of charges that it engaged in 15.78 billion won of naked short selling after South Korea's top court finalized an acquittal.
- [2]
The Supreme Court on Thursday, Oct. 8 (Yonhap report dated Oct. 8, 2026), upheld a lower court's acquittal of HSBC's Hong Kong unit on charges related to violating South Korea's short-selling rules; the shares involved were worth about 15.8 billion won.
- [3]
The Supreme Court's second division, presided over by Justice Oh Kyung-mi, upheld the lower court's acquittal.
- [4]
The first-instance court found that "borrowing must be confirmed before short selling takes place, and because HSBC had a system that completed that step after the fact, it is established that it conducted covered short selling."
- [5]
The first-instance court added that "there is no evidence to establish that the chief executive or the operator of the management system conspired to carry out naked short selling."
- [6]
The case was the first to go to trial since criminal penalties for illegal short selling were introduced in April 2021.
- [7]
Yonhap described the March 2024 indictment of the bank as the first criminal case of its kind in the country.
- [8]
In the first-instance trial, the Seoul Southern District Court acquitted the bank, ruling there was no evidence to prove the employees engaged in naked short selling with the knowledge that they were violating local rules.
- [9]
Both the trial court and the appellate court acquitted HSBC Hong Kong.
- [10]
Three people, including an HSBC Hong Kong trader identified as A, were indicted in March 2024 on charges of short selling 318,781 shares in nine listed companies, including Hotel Shilla, worth 15.78 billion won, without first borrowing the stock between August and December 2021.
- [11]
In South Korea, naked short selling, selling shares without having borrowed them in advance, is illegal.
- [12]
HSBC was put on trial under a provision that holds companies liable for acts by their employees.
- [13]
The Supreme Court ruled that submitting a sell order without an actual trade being executed does not in itself constitute illegal short selling under the Capital Markets Act; treating the submission of a quote before execution as short selling would amount to treating an attempted act the same as a completed one.
- [14]
The Supreme Court held that penal provisions must be interpreted strictly, and that excessively expanding or extending by analogy the scope of punishment in a way that disadvantages the defendant runs counter to the principle of legality.
- [15]
The Supreme Court found that the specific violators and violations tied to the alleged illegal short-selling orders had not been sufficiently proven.
- [16]
"There was no error in the lower court's judgment in misapprehending the legal principles on the establishment of a violation under Article 443, Paragraph 1, Item 10 of the former Capital Markets Act," the Supreme Court said.
- [17]
Lee & Ko, the law firm that represented HSBC, said the ruling "puts an end to the dispute over whether HSBC bears criminal liability for violating naked short-selling rules."
- [18]
Lee & Ko said the decision "sets out guidelines on when naked short selling becomes subject to criminal punishment."
- [19]
The first alleged sales came four months after the criminal penalties were introduced.
- [20]
About 31 months passed between the March 2024 indictment and the final ruling in October 2026.
- [21]
The final ruling came almost five years (about 58 months) after the last alleged sales in December 2021.
- [22]
The indicted sales averaged about 49,500 won per share.
- [23]
The indicted sales averaged roughly 1.75 billion won per company across the nine companies.
Sources
2 independent publishers whose own reporting we read for this story.
- en.sedaily.comHSBC Hong Kong Cleared of Naked Short-Selling Charges by Top Court
1 article · October 7, 2026
- en.yna.co.krTop court upholds HSBC's acquittal in short-selling case
2 articles · October 8, 2026
- koreajoongangdaily.comSupreme Court upholds acquittal of HSBC in naked short-selling case
1 article · October 7, 2026
Topics and entities
Topics
- South Korea financial regulation
- Naked short selling
- Securities Litigation