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Financial Services Commission |
[Alpha Biz= Paul Lee] As the full resumption of short selling approaches on the 31st of next month, financial authorities have mandated borrowing-free short sale prevention measures for corporations and securities firms. Failure to comply will result in fines of up to 100 million won and further sanctions. The trading conditions for short selling will also be standardized to ensure that individual investors are not disadvantaged compared to institutional or corporate investors.
On Tuesday, the Financial Services Commission (FSC) announced that the revised Enforcement Decree of the Capital Markets Act, which includes these measures, passed the Cabinet meeting and will come into effect on the 31st of next month.
According to the revision, corporations wishing to short sell listed stocks must establish internal control standards to prevent borrowing-free short selling. Following the resumption of short selling, corporations, market makers, and liquidity providers whose short positions meet the reporting threshold of 0.01% or 1 billion won will be required to establish a short-selling management system to block borrowing-free short sales.
Corporations and securities firms that violate these borrowing-free short sale prevention measures will be fined up to 100 million won, and securities firms and other financial investment businesses may face sanctions for their institutions and employees.
The borrowing period for institutional investors’ short sale borrowing transactions and individual investors’ lending services will be standardized at 90 days, with an extension of up to 12 months. Previously, institutional investors did not have a fixed borrowing period for such transactions, while individual investors were restricted to 90 days, a situation that was considered disadvantageous for individual investors. Violations of the borrowing period will result in fines of 100 million won for corporations and 50 million won for individuals.
Investors who engage in short selling during the period between the public announcement of convertible bonds (CB) or warrants (BW) and the day when the conversion or exercise price is disclosed will be banned from acquiring CBs or BW. Additionally, short sale orders on alternative trading systems (ATS) will be subject to the same short sale reporting requirements as those on regular exchanges.
The financial authorities stated that preparations for the implementation of the short selling system improvements are progressing smoothly and will continue to ensure thorough follow-up actions as they prepare for the full resumption of short selling.
AlphaBIZ Paul Lee(hoondork1977@alphabiz.co.kr)
