FSC finalises beefed-up short selling rules
20 April 2021 South Korea
Image: stock.adobe.com/iQoncept
The FSC has amended the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) with stricter penalties for naked short selling in anticipation of lifting the short selling ban on 3 May.
The revisions have introduced new penalties on illegal short sale activities, record-keeping requirements on securities lending agreements and restrictions on short sellers’ participation in capital increase.
Short sellers must keep their securities lending agreements for five years, with specific criteria to be maintained, including information on stock items, number of shares, transaction dates, counterparties, lending periods and fee rates.
The amendment also requires the storage of transaction data in an electronic transaction processing platform or other format that is not susceptible to alteration.
Short sellers now also face restrictions on participating in a company’s capital increase via issuing new shares once the company has made such a plan public — if an investor has shorted a company’s stocks during the restriction period, the investor cannot participate in the company’s capital increase, except for the cases where the short selling is deemed to have no unjust effects on the issuing price.
A penalty of up to 1.5 times the undue profit gained from violating this rule can be imposed, the new rules state.
The government approved the revisions to the FSCMA during a cabinet meeting held on 30 March and the amendments took effect on 6 April, ahead of the partial resumption of short-selling on 3 May.
FSC chair Eun Sung-soo also met with officials from relevant institutions and heads of securities companies on 15 April to hold talks on the measures introduced in advance of the partial resumption of short selling in May.
The FSC’s revised rules and regulations are part of a broader push in South Korea to protect investors. The South Korean stock exchange set-up a “special team” in February tasked with monitoring illegal short selling activities, as part of a major crackdown on what regulators and politicians see as a systemic threat to markets.
Now read: SFT Asia Handbook 2021
The revisions have introduced new penalties on illegal short sale activities, record-keeping requirements on securities lending agreements and restrictions on short sellers’ participation in capital increase.
Short sellers must keep their securities lending agreements for five years, with specific criteria to be maintained, including information on stock items, number of shares, transaction dates, counterparties, lending periods and fee rates.
The amendment also requires the storage of transaction data in an electronic transaction processing platform or other format that is not susceptible to alteration.
Short sellers now also face restrictions on participating in a company’s capital increase via issuing new shares once the company has made such a plan public — if an investor has shorted a company’s stocks during the restriction period, the investor cannot participate in the company’s capital increase, except for the cases where the short selling is deemed to have no unjust effects on the issuing price.
A penalty of up to 1.5 times the undue profit gained from violating this rule can be imposed, the new rules state.
The government approved the revisions to the FSCMA during a cabinet meeting held on 30 March and the amendments took effect on 6 April, ahead of the partial resumption of short-selling on 3 May.
FSC chair Eun Sung-soo also met with officials from relevant institutions and heads of securities companies on 15 April to hold talks on the measures introduced in advance of the partial resumption of short selling in May.
The FSC’s revised rules and regulations are part of a broader push in South Korea to protect investors. The South Korean stock exchange set-up a “special team” in February tasked with monitoring illegal short selling activities, as part of a major crackdown on what regulators and politicians see as a systemic threat to markets.
Now read: SFT Asia Handbook 2021
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