South Korea proposes changes to short selling regulations
27 September 2024 South Korea
Image: Mr.wijit_amkapet/stock.adobe.com
A revision bill for the Financial Investment Services and Capital Markets Act (FSCMA) has passed at National Assembly’s plenary session, the Financial Services Commission (FSC) of South Korea announced.
The bill aims to enhance regulations on short selling and is scheduled to lift the ban on short selling by the end of March 2025.
The Pan Asian Securities Lending Association (PASLA) welcomes the passing of the revision bill, which is an “encouraging development for all investors and issuers”.
The association says: “The revisions provide a key step toward reopening the South Korean market. The resumption of short selling activities will enable both international and domestic market participants to engage fully in the market with a comprehensive suite of hedging and investment tools.”
The FSC banned short selling in November 2023 amid concerns about frequent occurrences of naked short sale activities and their disruptive effects on market’s fair pricing function.
The revised FSCMA requires institutional investors to set up their own electronic short sale processing system, while both institutional and corporate investors will need to prepare relevant internal control standards.
For institutional investors, there will be a new restriction on the stock repayment period for borrowed stocks.
In addition, the bill aims to enhance the effectiveness of punishment and sanctions by strengthening monetary penalties that can be imposed on unfair trading and illegal short sale activities.
The new sanctions mechanisms include a ban on trading financial investment products and restriction from being appointed or serving as an executive at listed companies.
PASLA supports the FSC’s objective to level the playing field for market participants and to address illegal and unfair trading practices.
The association adds: “PASLA will continue to maintain close communication between our members and local stakeholders to support the future growth of a healthy securities finance market in South Korea.”
The revised FSCMA will go into effect on 31 March 2025, considering the time it requires to establish an electronic short sale processing and monitoring system as initially planned until March next year.
However, the penalty clauses will become effective six months after the law promulgation due to the need to gather sufficient comments prior to making changes to subordinate statutes.
The bill aims to enhance regulations on short selling and is scheduled to lift the ban on short selling by the end of March 2025.
The Pan Asian Securities Lending Association (PASLA) welcomes the passing of the revision bill, which is an “encouraging development for all investors and issuers”.
The association says: “The revisions provide a key step toward reopening the South Korean market. The resumption of short selling activities will enable both international and domestic market participants to engage fully in the market with a comprehensive suite of hedging and investment tools.”
The FSC banned short selling in November 2023 amid concerns about frequent occurrences of naked short sale activities and their disruptive effects on market’s fair pricing function.
The revised FSCMA requires institutional investors to set up their own electronic short sale processing system, while both institutional and corporate investors will need to prepare relevant internal control standards.
For institutional investors, there will be a new restriction on the stock repayment period for borrowed stocks.
In addition, the bill aims to enhance the effectiveness of punishment and sanctions by strengthening monetary penalties that can be imposed on unfair trading and illegal short sale activities.
The new sanctions mechanisms include a ban on trading financial investment products and restriction from being appointed or serving as an executive at listed companies.
PASLA supports the FSC’s objective to level the playing field for market participants and to address illegal and unfair trading practices.
The association adds: “PASLA will continue to maintain close communication between our members and local stakeholders to support the future growth of a healthy securities finance market in South Korea.”
The revised FSCMA will go into effect on 31 March 2025, considering the time it requires to establish an electronic short sale processing and monitoring system as initially planned until March next year.
However, the penalty clauses will become effective six months after the law promulgation due to the need to gather sufficient comments prior to making changes to subordinate statutes.
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