Ripple Partner HSBC Indicted for Naked Shorting in South Korea

Criminal charges have been brought against HSBC, one of the leading world investment banks, together with three of its traders by South Korean prosecutors. This represents a major development as HSBC, an associate of Ripple through its partnership with tech firm Metaco, is accused of illegal naked short selling, and the allegations amount to 15.8 billion won (around $12 million).

The actions of the defendant took place in 2021, between August and December, and included short-selling participation of shares from nine listed companies, among them Hotel Shilla Co., without being an owner or having borrowed those shares to sell. This lawsuit against HSBC is the first-ever action in South Korea since stringent laws were put in place in April 2021 to prevent illegal practices of short selling. 

According to the Capital Markets Act, the persons found guilty of naked short selling may spend up to one year in prison or be fined from three to five times the benefits earned from such activities.

Scrutiny Extends to BNP Paribas

The investigation also involves BNP Paribas, a key player in the financial sector, to be investigated for short-selling 40 billion won worth of stocks with no prior borrowing.

The French bank and HSBC were penalized with heavy fines in the amount of 26.52 billion won, which turned out to be the largest fines ever imposed in South Korea for naked short-selling violations. This progress highlights the commitment of the Korean authorities to enforcement of the new regulations and market integrity.

HSBC’s Venture into Digital Asset Custody

However, despite these legal challenges, HSBC had announced plans to expand its services into the digital asset space. HSBC, in alliance with Metaco, a company linked to Ripple Labs Inc., aims at providing custodian services for tokenized securities. This project is designed to further develop HSBC’s Orion platform, which contains a protocol for tokenized gold that utilizes blockchain to represent ownership of physical gold in the form of digital tokens.

This is a direction that HSBC takes up in line with the general tendency of the traditional financial entities to adopt blockchain and digital assets. As institutional players’ interest in the digital asset market keeps on growing, custodial services are becoming more and more in demand. The HSBC’s foray into this market is a clear indication of the potential of this space to grow, with the institutional crypto custody market forecasted to hit almost $10 trillion by 2030.

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