KOREAN REPUBLIC: FSC to Strengthen Investigation and Sanctions related to Breach of Short Selling Regulations

Wednesday August 30 2017

On 23 August 2017, the Financial Services Commission (FSC) announced its plan to ease the short-selling’s proportion to the entire stock trading with the Financial Supervisory Service (FSS) and the Korea Exchange and increase fines on investors who violate short-selling regulations.

From September 2017, The FSC will be able to put a brake on short-selling of a certain stock for a day, if short-selling of stocks that have fallen more than 5 percent.  It will also lower the short-selling’s proportion from:

• the current 20 percent to 18 percent in the KOSPI market (and the volume of short-selling on that stock rose six-fold compared to the average of the previous 40 trading days), and
• from the current 15 percent to 12 percent in the KOSDAQ market (and the short-selling is five times the average for the previous two months). If a stock drops between 10 percent a day on either market, the short-selling will be restricted the next day regardless of the short-selling’s proportion to the entire stock trading.

Since the availability of short selling bans being initially imposed in March 2017, bans have been implemented five times on the main bourse and six times on the secondary market. Under a strengthened system, the FSC anticipates that the frequency would rise to once a week on the Kospi market and once a day on the Kosdaq. Under a strengthened system, the Financial Services Commission anticipated that the frequency would rise to once a week on the Kospi market and once a day on the Kosdaq.

In addition, from the fourth quarter 2017, the FSC plans to toughen the penalties against those who violate short-selling regulations. Currently, the regulatory agency applies different penalties depending on whether the violation was intentional or a mistake. However, those penalties will be split into three decisions – intentional, light and heavy – which means a heavier penalty will be imposed for repeat offenses, even if they were unintentional. The maximum limit on the fine will be doubled from 50 million won (US$44,346) to 100 million won (US$88,692), with an additional 50 percent if the short-selling was conducted for unfair business gain.

Please follow this link for our February 2017 article on new rules on “overheated short selling” 

Please click on the above link for more information.