Exchange Strengthens Designation System for Overheated Short-Selling Stocks... Expands Removal Criteria and Ban Period

[Asia Economy Reporter Myunghwan Lee] The designation of short-selling overheated stocks in the domestic stock market will be further expanded. The short-selling ban period for stocks designated as overheated will also be extended by one day.

The Korea Exchange announced on the 17th that it plans to revise the detailed enforcement rules of the securities market business regulations to strengthen the short-selling overheated stock designation system. This revision is a follow-up measure to the joint announcement made on the 28th of last month by the Financial Services Commission and related agencies on 'Strengthening the detection and punishment of illegal short selling and supplementing short-selling related systems.'

The revision includes a significant increase in the criteria for designating short-selling overheated stocks. A 'Type 4' criterion will be added to the existing three criteria for identifying short-selling overheated stocks. According to this criterion, stocks will be designated as short-selling overheated if ▲the short-selling ratio is 30% or higher, ▲the stock price decline rate is 3% or more, and ▲the short-selling trading value increase multiple is 2 times or more. This criterion applies to the KOSPI, KOSDAQ, and KONEX markets.

According to the Korea Exchange's related simulation results, the number of short-selling overheated stock designations is expected to increase by 13.8%, from 690 cases per year to 785 cases, with the strengthened designation criteria.

The short-selling ban period will also be extended. If the stock price decline rate of the relevant stock is 5% or more on the short-selling ban day or the extended ban day, the short-selling ban period will be extended until the next day. In this case, the number of days designated as short-selling overheated stocks is predicted to increase by 15.4%, from 690 days per year to 796 days.

The Korea Exchange stated that it plans to implement the revised detailed rules as soon as possible, considering the completion of IT system development, after completing the revision of the exchange business regulations detailed rules and prior notice within August.