Corporations Engaged in Short Selling Must Establish Real-Time System for Calculating Available Sellable Balance

Financial Supervisory Service Implements Short Selling Guidelines

Financial Supervisory Service building in Yeouido, Seoul. Photo by Younghan Heo younghan@

The Financial Supervisory Service (FSS) has mandated corporate investors wishing to engage in short selling to establish a system that calculates the sellable balance per stock in real time.

On the 20th, the FSS announced the implementation of the "Short Selling Internal Control and In-house Balance Management System Guidelines." These guidelines were created to help various market participants establish internal control systems ahead of the short selling central monitoring system (NSDS) that the financial authorities plan to build by March next year.

The guidelines apply to all corporate investors in South Korea who wish to conduct short selling transactions. To prevent naked short selling, the guidelines require the establishment of departments responsible for controlling short selling transactions and audit departments, as well as procedures to verify the legal validity and approve transactions before placing short selling orders.

Additionally, the guidelines include provisions for regular inspections of internal control systems, measures against violators, and plans to prevent recurrence. Regarding the balance management system, it mandates real-time calculation of sellable balances per stock and continuous blocking of sales exceeding the available balance until sufficient balance is secured. To prevent manipulation, only system-calculated balances are allowed, and any additional balance changes require approval from a superior.

Corporate investors wishing to engage in short selling must establish internal control and balance management systems by the end of this year. An FSS official stated, "We will enhance understanding of the guidelines through regular communication, including interviews with institutional investors."