The financial regulator on Thursday indicated that a ban on stock short-selling would be extended until March next year, as it seeks to develop a computerized monitoring system on short-selling before resuming the investment strategy.
The government will also revise a law to significantly strengthen punishment for illegal stock short selling, while limiting traders to buy back sold shares within 12 months, according to the Financial Services Commission (FSC).
The plan to improve the country’s stock short-selling system was finalized at a government-ruling party meeting held earlier in the day, also involving private experts, including those from the Korea Exchange (KRX), the country’s bourse operator.
“The plan to improve the stock short-selling system is an effort to protect investors and maintain market order by fundamentally improving the system,” the financial regulator said in a press release.
To this end, institutional investors, which account for 92 percent of stock short selling, will be required
to develop and maintain a system that will prevent naked or illegal stock short selling in the first place.
The government is also working to develop a “naked short sale detection system” that it said will enable real-time monitoring of stock short sales by the KRX.
The FSC has said it will work to develop the new monitoring system by March, when the temporary ban on stock short selling is widely expected to be lifted.
The temporary ban was put in place in November, and was originally set to expire at the end of this month.
The financial regulator said the ruling People Power Party has asked the government to extend the ban, and that a decision will be made in an FSC meeting in the future.
The move to improve the stock short selling system came after the financial regulator detected naked short selling at two global investment banks (IBs) last year.
The government has since launched an inspection of all 14 major global IBs in the country, and has so far detected illegal short selling orders, worth some
211.2 billion won (US$153.7 million) at nine of them while the other five IBs are still undergoing inspection, according to the FSC.
The financial regulator said it will push to strengthen punishment for naked stock short selling.
Currently, those found guilty of naked short selling may be fined up to five times their profit from illegal trade. The maximum fine will be raised to six times the profit, while the maximum prison term for those making more than 5 billion won from illegal short selling will increase from 30 years to life imprisonment.
“The government plans to swiftly take follow-up measures so the plan to improve stock short-selling system can be implemented at the earliest date possible,” the FSC said.
“It will work closely with the National Assembly to support the legislation process with an aim to revise the related laws before the end of the year,” it added.
Source: Yonhap News Agency
