South Korea's Financial Watchdog Uncovers 77-Fold Stock Lending Rate Disparity at Major Securities Firms

According to financial industry sources, South Korea's Financial Services Commission completed field inspections of securities companies' ETF liquidity provider (LP) departments on July 20, the findings revealing questionable stock-lending practices. The inspections, which began in mid-April and targeted BNK Investment Securities, Mirae Asset Securities, and Meritz Securities, found firms borrowed stocks from asset managers at an average rate of 0.028% annually, then relent them to hedge funds at 2.15%—a 77-fold rate differential that generated risk-free margin gains. The regulator is expected to move toward regulatory reforms, examining whether the practice constitutes unethical business conduct.
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