[Asia Economy Reporter Song Hwajeong] The Korea Exchange Market Surveillance Committee (MSC) announced on the 28th that it is conducting a special audit regarding violations of short-selling regulations by market makers.
Although short selling is prohibited during the ban period, market makers have been exceptionally allowed to short sell considering their role in providing liquidity to the market and the need for risk management.
An MSC official explained, "Concerns about possible violations of regulations and unfair trading related to recent short-selling transactions by market makers have arisen, leading to this special inspection as a follow-up measure to the 'Comprehensive Measures to Eradicate Illegal and Unsound Practices in the Securities Market' announced by the Financial Services Commission on the 19th."
Currently, a total of 22 members participate as market makers: 12 companies in the stock market (KOSPI, KOSDAQ) and 18 companies in the derivatives market, with 8 companies participating in both stock and derivatives markets. These market makers perform market-making activities for 842 stock items and 206 derivative products.
The MSC plans to conduct a full investigation into all 22 market makers participating in the stock and derivatives markets to determine any violations of short-selling regulations. They will inspect overall internal controls related to short selling, focusing especially on naked short selling and uptick rule violations.
The MSC recently completed the basic data analysis related to short selling by market makers and is currently conducting an in-depth analysis based on related documents submitted by market makers, such as borrowing contracts and balance status.
An MSC official stated, "Based on the analysis of related materials, we plan to complete inspections of market makers within this year, including on-site investigations by directly visiting the business offices of the relevant members. If any violations of regulations are confirmed, we will strictly take action against the respective market makers in accordance with the principles."
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