On Nov. 5, SK FSC, SK FSS banned short selling until end-Jun. 2024.
SK FSC Chairman Kim Joo-hyun held a briefing with SK FSS Chairman Lee Bok-hyun, on the complete ban on short selling of all stocks in the domestic stock market.
Follows SK FSC, FSS Feb. 2021 further extended short selling ban until May, #73381.
Also follows SK FSS May 2023 issued plan to eradicate illegal short-selling, #171320.
Follows FSS Sep. 2023 met with foreign stock brokers re short-selling, see #184238.
Also follows SK FSS Oct. 2023 plan re illegal short selling by global IBs, see #187978.
Background
Currently, short selling is prohibited except for stocks included in KOSPI 200/KOSDAQ 150, and leveraged short selling by market makers and liquidity providers is permitted.
Despite improvements in the system so far, there are still concerns about fair price formation in the market, as investors are found doing illegal naked short selling.
Recently, a case of large-scale naked short selling by a global investment bank was discovered, along with additional illegal circumstances; an investigation is ongoing.
Measures
During the period of the ban, regulators will prepare improvement measures to resolve the tilted playing field of short selling conditions, and to prevent naked short selling.
Consider alternatives to establishing real-time blocking system for naked short selling.
Investigations to detect and punish naked short selling by foreigners and institutions; apply a zero-tolerance principle, including strict penalties, active criminal prosecution.
Effectiveness
Effective from Nov. 6, 2023 through the first half of 2024, until end of Jun. 2024.
Nov. 16, 2023 Short Selling Reform Meeting
On Nov. 16, 2023, SK FSC and SK FSS attended a meeting on short selling reform measures with the private sector, the ruling party, and the government.
Participants discussed a direction for improvements to the short selling system, which aims to level the playing field, prevent naked short sales in advance, strengthen detection, punishment of illegal short selling, expand short sale disclosure.
Proposed measures include: set the stock repayment period for institutional investors as 90 days, reduce the margin requirement for retail investors to 105%, while the collateral ratio for KOSPI200 stocks remain the same as the current level at 120%.
Require institutional investors to set up an internal computer system for managing their short positions, relevant standards for internal control, exemption to be granted.
Oblige securities companies to check institutional investors’ internal systems prior to allowing them to submit short sale orders, report their verification results SK FSS.
A special investigation unit will carry out a thorough inspection on major global investment banks, impose strict penalties against any illegal activities.
Strengthen the threshold for disclosure requirement to the level of that for reporting requirement, which is 0.01% or more of the total issued shares, or KRW 1bn or more.
The authorities will continue to have discussions at the National Assembly, collect public opinions, consider additional measures that may arise in the process.
Nov. 23, 2023 Task Force Kick-off Meeting
On Nov. 23, 2023, SK FSS, KRX formed a task force with SK FIA and the industry, held a kick-off meeting to develop a computer system for preventing naked short selling.
Will discuss ways to build an internal computer system for institutional investors conducting short sales, to operate a real-time system to block naked short sales.
The task force will be held at least once a month, and will be operated until the computer system is built; its working group will be formed, be held every other week.
SK FSS will support the task force by forming a short selling computer system support team, which will be composed of personnel well-versed in IT and foreign languages.
Nov. 28, 2023 Explanatory Materials
On Nov. 28, 2023, KRX said that it has distributed explanatory materials on the short selling reform measures discussed during the Nov. 16 meeting.
The materials detail discussions by securities-related organizations on how to address the tilted playing field of short selling conditions, short selling computer system.
Related organizations including KRX will collect opinions from individuals, institutions, domestic/foreign investors, experts based on the materials, further review, present a reasonable alternative if any to the National Assembly and financial authorities.
