Korean regulators clamp down on short selling
Korea’s regulatory authorities are developing a set of proposals to reform the rules around short- selling, following concerns that illegal naked short-selling is preventing fair price formation.
The intention: The authorities are hoping that new policy measures will level the playing field between institutional and retail investors, prevent naked short sales in advance, strengthen the detection of illegal short-selling activities, and expand short sale disclosure.
What is naked short-selling? This is the practice of short-selling a tradeable asset without first borrowing the asset from someone else, or ensuring that it can be borrowed, or owning the asset in order to honor the agreement. Despite this practice being widely illegal, there continue to be instances of naked short-selling.
Closely related: The Financial Services Commission held a meeting on November 5, 2023 where the authorities decided to ban all stock short-selling in domestic markets effective from Monday, November 6, 2023 until the end of June 2024.
- A new taskforce has been formed, and at its first meeting, discussed a real-time blocking system to prevent illegal short selling
- The taskforce plans to meet at least once a month until the computer system is established
Looking ahead: Once fully developed, the authorities hope that these proposals will help to bring about improvements to the short-selling system, by balancing the concerns of retail investors alongside those of global institutional investors.
Important context: Short-selling has become an important political issue in South Korea, as retail investors apply pressure on policymakers to restrict the practice ahead of parliamentary elections next year.
Bloomberg
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