Unified 90-Day Repayment Period for Short Selling... Ban Expected to Lift from Q2 Next Year

Mindangjeong Announces Improvements to Short Selling System
Extension Limits Set for Institutional Investors
Final Approval Pending Financial Services Commission Vote

On the 13th, the People Power Party and the government agreed to limit the repayment period for short-selling loan transactions by institutional investors to 90 days, the same as individuals, and to restrict the number of times this period can be extended. The current short-selling ban is expected to be lifted starting from the second quarter of next year.

On the same day, the ruling and opposition parties held a meeting at the National Assembly titled 'Improvement of the Short-Selling System to Establish Market Order,' where they discussed plans to improve the short-selling system and build a computerized system to monitor illegal short selling.

Chu Kyung-ho, floor leader of the People Power Party, is speaking at the Emergency Response Committee meeting held at the central party office in Yeouido, Seoul, on the 13th. Photo by Hyunmin Kim kimhyun81@

During the meeting, it was discussed to limit the repayment period for short-selling loan transactions by institutional investors to 90 days, the same as individuals, and to restrict the number of extensions allowed. The specific number of extensions will be decided by the Financial Development Review Committee, a policy advisory body under the Financial Services Commission (FSC). It is also reported that applying the same collateral ratio of 105% or higher for individual lenders is being strongly considered. However, a People Power Party official stated, "Since this is a matter for the FSC's resolution, it will take some time before the ratio is finalized."

Additionally, it was confirmed that the current short-selling ban will be fully lifted after March next year. This timing coincides with the completion of the Korea Exchange's illegal short-selling central blocking system (NSDS), which is designed to prevent naked short selling. The plan is to fully resume short selling once the illegal short-selling blocking system, emphasized as a prerequisite, is completely established. Earlier, on the 10th, the Financial Supervisory Service (FSS) also partially disclosed guidelines regarding the establishment of institutional investors' own balance management systems, which is one of the major components of the computerized short-selling system along with NSDS. According to the disclosed plan, institutional investors must manage loan transaction information and available sellable balances according to internal control standards to preemptively block naked short selling. They must also calculate the available sellable balance before and after transactions and establish blocking procedures for sell orders exceeding the balance.

There is also a high possibility that discussions will be held to strengthen punishments and sanctions for illegal short selling. Currently, the FSS is conducting a comprehensive investigation into illegal short selling targeting global investment banks (IBs). Jeong Jeom-sik, the Policy Committee Chair of the People Power Party, said, "We will achieve progressive institutional improvements beyond the existing framework to fundamentally resolve the problems of short selling raised by individual investors."