Korea exchange launches task force in pursue illegal short selling crackdown
05 February 2021 South Korea
Image: Patrick_Foto/adobe.stock.com
The South Korean stock exchange (KRX) is setting-up a “special team” tasked with monitoring illegal short selling activities as part of a major crackdown on what regulators and politicians see a systemic threat to markets.
The team will be formed this month and aims to strengthen oversight of short sellers ahead of the partial resumption of bearish activity in May and represents the exchange’s contribution to the Financial Services Commission’s (FSC) pledge to the “detection of and punishment” of illegal trading.
The KRX was unable to confirm the team's participants at this time.
Under the enhanced oversight framework, the monitoring period for naked short selling will be reduced from once every six months to every month.
The market authorities also aim to operate a real-time monitoring system to detect suspicious activities and take immediate actions.
The regulatory push is set to prepare for the implementation of the amended Financial Investment Services and Capital Markets Act which brings stringent rules for monitoring securities lending and short selling.
The new rules, which come into effect on 6 April, include a fine of up to the amount of the maximum short orders and a minimum of a one year prison sentence.
Short sellers will also be required to keep their securities lending data for five years, while securities firms must be seen to proactively tighten monitoring of illegal short selling activities.
Elsewhere, the authorities are introducing new restrictions to market-maker activities to prevent market abuse.
Market makers will be prohibited from short selling mini-KOSPI 200 futures and options when acting in their capacity as market makers.
Their market-making function will be restricted on high-liquidity items which is expected to cut short selling volume by more than half of pre-ban levels, according to the FSC.
Market makers will be subject to more stringent disclosure rules to help improve transparency that are yet to be confirmed.
The KRX says it is setting up a system to enforce these changes with a predicted go live on 16 March.
The team will be formed this month and aims to strengthen oversight of short sellers ahead of the partial resumption of bearish activity in May and represents the exchange’s contribution to the Financial Services Commission’s (FSC) pledge to the “detection of and punishment” of illegal trading.
The KRX was unable to confirm the team's participants at this time.
Under the enhanced oversight framework, the monitoring period for naked short selling will be reduced from once every six months to every month.
The market authorities also aim to operate a real-time monitoring system to detect suspicious activities and take immediate actions.
The regulatory push is set to prepare for the implementation of the amended Financial Investment Services and Capital Markets Act which brings stringent rules for monitoring securities lending and short selling.
The new rules, which come into effect on 6 April, include a fine of up to the amount of the maximum short orders and a minimum of a one year prison sentence.
Short sellers will also be required to keep their securities lending data for five years, while securities firms must be seen to proactively tighten monitoring of illegal short selling activities.
Elsewhere, the authorities are introducing new restrictions to market-maker activities to prevent market abuse.
Market makers will be prohibited from short selling mini-KOSPI 200 futures and options when acting in their capacity as market makers.
Their market-making function will be restricted on high-liquidity items which is expected to cut short selling volume by more than half of pre-ban levels, according to the FSC.
Market makers will be subject to more stringent disclosure rules to help improve transparency that are yet to be confirmed.
The KRX says it is setting up a system to enforce these changes with a predicted go live on 16 March.
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