SOUTH Korea will consider changes to its short-selling rules on Thursday (Jun 13) as part of ongoing discussions on when to lift the ban on the trading strategy.
Government officials and the ruling party will consider mandating institutional investors to establish procedures to control illicit trade and submit short-selling transactions data to a centralised monitoring system, a source familiar with the matter said, asking not to be identified before a final decision.
The meeting, which comes weeks before the expiry of the short-selling ban on Jun 30, will provide clarity to investors awaiting details on rule tweaks. The government banned the trade in November to root out “rampant” naked short selling – a practice of selling shares without borrowing them first – which is illegal in the country.
A potential resumption of short selling has been a key focus among investors as the trading strategy is widely used in other markets. Authorities have recently signalled the ban will likely be extended beyond June. The government is trying to develop a system for detecting naked short selling by March and needs to legalise data submission by market participants for the platform to operate, indicating many more months before conditions for resumption are met.
Officials at the nation’s financial regulator declined to comment when asked if the timing of short-selling resumption will be discussed on Thursday. The decision is made by the nine-member commissioners at the Financial Services Commission.
“Even if there is an official announcement about allowing short selling after March, it won’t be a huge surprise to the market,” said An Hyungjin, chief executive officer at Billionfold Asset Management, a hedge fund in Seoul. “Individual investors are also expecting short selling to be resumed after March.”
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The authorities will also discuss introducing harsher punishment for illegal short sellers as well as adopting a mandatory repayment period of 90 days for institutional investors, against an unrestricted period before, Maeil Business Daily reported on Tuesday, without citing anyone. They plan to restart short selling after March, the report added.
The ruling party did not respond to calls seeking comments.
Short sellers are particularly unpopular among South Korean retail investors, who have become a key voting bloc and often blame them for sinking share prices.
Shortly after the trade was banned, South Korea launched an investigation into global banks to scrutinise their past transactions of short selling. Investigators have so far found US$156 million worth of illegal short trades by nine global investment banks, most of which were procedural rule violations. BLOOMBERG
