Exchange to Significantly Increase Number of Overheated Short-Selling Stocks Starting Next Week

Strengthening Short Selling Detection Types
Extension of Ban Period if Stock Price Decline is Excessive

Korea Exchange Seoul Headquarters

[Asia Economy Reporter Minji Lee] The Korea Exchange (KRX) will strengthen the designation system for short-selling overheated stocks to stabilize the market. This measure is scheduled to take effect from the 24th.

The short-selling overheated stock designation system prohibits short selling on the following day for individual stocks that meet certain criteria, such as a specific level of stock price decline, short-selling ratio, increase multiple of short-selling transaction value, and average short-selling ratio. This system was introduced in 2017.

Through this system improvement, the Exchange plans to enhance the types of short-selling detection. First, additional detection types have been added to identify stocks with excessive short-selling ratios. The newly added detection criteria include stocks with a short-selling ratio of 30% or more in the securities market, or stocks with a price decline of 3% or more and a short-selling transaction value increase multiple of 2 times or more.

Furthermore, for stocks with excessive price declines even after being designated as overheated stocks, the prohibition period will be extended. If the stock price decline is 5% or more on the prohibition day or the extended prohibition day, the prohibition period will be extended until the next trading day.

The Exchange expects that this system improvement will help mitigate stock-specific volatility caused by a surge in short selling. The Exchange stated, "After operating in the October simulation market to prevent system errors and conduct trial runs, no issues were found," and added, "This system improvement is expected to increase the number of overheated stock designations and the number of designation days by around 15%, thereby promoting market stabilization."

Meanwhile, the criteria for designating short-selling overheated stocks, related data, and disclosure details can be found on the Exchange's website.