South Korea ready to resume short selling
24 March 2025 South Korea
Image: fenlio/stock.adobe.com
The Financial Services Commission (FSC) of South Korea has confirmed that it will fully reinstate stock short selling from 31 March.
This follows the approval of a revision bill for the Financial Investment Services and Capital Markets Act (FSCMA) in September 2024.
Institutional and corporate investors can engage in short selling only if they have established relevant internal control standards and required computer systems intended to prevent naked short selling.
In addition, securities companies are obligated to submit short sale orders only after verifying the establishment of required computer systems and internal control standards by institutional and corporate investors.
The FSC says: “With the short sale reform measures and relevant policy efforts put in place thus far, it is expected that prevalent concern about short selling undermining market’s fair pricing function can be resolved to a large extent.
“Once the improved rules take effect on 31 March, a completely computerised short selling system will begin to operate on all listed stocks, which will ensure the establishment of preventive mechanisms against naked short selling.”
From 31 March, the stock borrowing conditions for short sellers will be identical for both institutional and retail investors.
This includes the cash collateral ratio of 105 per cent, with the stock repayment period being limited to 90 days and renewable for a maximum of 12 months
Naked short sale activities carried out in a deliberate manner will be subject to enhanced criminal penalties.
The FSC expects that the complete resumption of short selling, which will take place for the first time in about five years with a newly established computerised system, will enhance the external credibility and market efficiency of Korea’s stock markets.
The designation scheme for overheated short selling stocks — which restricts the short sale on the following day of individual stock items that have been subject to rapid increases in short sale orders on the previous day — will operate in an expanded capacity until 31 May.
According to the FSC, this is due to concerns over a possible rise of volatility in certain stock items following the reinstatement of short selling.
There will be continuing simulations until 27 March to test the effectiveness and stability of computer systems at institutional investors and the central monitoring and inspection system.
The FSC adds: “Once short selling is reinstated on 31 March, the government and related organisations will strengthen monitoring over market activities and enhance market surveillance to ward off unfair trading activities.”
With the anticipated return of short selling to South Korea, Securities Finance Times recently spoke with industry experts and local sources on the matter.
This follows the approval of a revision bill for the Financial Investment Services and Capital Markets Act (FSCMA) in September 2024.
Institutional and corporate investors can engage in short selling only if they have established relevant internal control standards and required computer systems intended to prevent naked short selling.
In addition, securities companies are obligated to submit short sale orders only after verifying the establishment of required computer systems and internal control standards by institutional and corporate investors.
The FSC says: “With the short sale reform measures and relevant policy efforts put in place thus far, it is expected that prevalent concern about short selling undermining market’s fair pricing function can be resolved to a large extent.
“Once the improved rules take effect on 31 March, a completely computerised short selling system will begin to operate on all listed stocks, which will ensure the establishment of preventive mechanisms against naked short selling.”
From 31 March, the stock borrowing conditions for short sellers will be identical for both institutional and retail investors.
This includes the cash collateral ratio of 105 per cent, with the stock repayment period being limited to 90 days and renewable for a maximum of 12 months
Naked short sale activities carried out in a deliberate manner will be subject to enhanced criminal penalties.
The FSC expects that the complete resumption of short selling, which will take place for the first time in about five years with a newly established computerised system, will enhance the external credibility and market efficiency of Korea’s stock markets.
The designation scheme for overheated short selling stocks — which restricts the short sale on the following day of individual stock items that have been subject to rapid increases in short sale orders on the previous day — will operate in an expanded capacity until 31 May.
According to the FSC, this is due to concerns over a possible rise of volatility in certain stock items following the reinstatement of short selling.
There will be continuing simulations until 27 March to test the effectiveness and stability of computer systems at institutional investors and the central monitoring and inspection system.
The FSC adds: “Once short selling is reinstated on 31 March, the government and related organisations will strengthen monitoring over market activities and enhance market surveillance to ward off unfair trading activities.”
With the anticipated return of short selling to South Korea, Securities Finance Times recently spoke with industry experts and local sources on the matter.
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