Prevent Illegal Short Selling... Strengthening Disclosure Standards for Short Selling Balances

Expansion of Short Selling Net Holding Reporting Targets
Capital Market Act Enforcement Decree Approved at Cabinet Meeting
"Full Preparation for Short Selling Resumption in March Next Year"

Starting from the 1st of next month, the disclosure criteria for short selling balances will be strengthened to eradicate illegal short selling.

The Financial Services Commission announced that the "Enforcement Decree of the Capital Markets and Financial Investment Services Act," aimed at strengthening the disclosure criteria for net short selling balances, was approved at the Cabinet meeting on the 5th. Net short selling balance refers to the remaining balance after subtracting the total borrowed securities from the total held securities.

Previously, only holders of short selling balances exceeding 0.5% of the issued shares were disclosed, but going forward, all holders with short selling balances of 0.01% or more of the issued shares (excluding those under 100 million KRW) or 1 billion KRW or more will be disclosed. This means the scope of disclosure obligations will expand.

However, if the short selling balance is 0.01% (excluding those under 100 million KRW) or 1 billion KRW or more but less than 0.5%, newly included in the disclosure target, disclosure can be made starting from December 4th, the second business day after the first business day following the enforcement date.

The Financial Services Commission also stated that improvements related to trust systems included in the revised enforcement decree, such as "establishing trust requirements for insurance claim rights," will be comprehensively announced upon promulgation and enforcement next week.

This amendment to the enforcement decree is part of the follow-up measures to the short selling system improvement plan announced in June. The government and related agencies have been working to improve the short selling system to eliminate illegal and unfair short selling practices. In particular, they have prioritized improvements that do not require legislative amendments.

Legislative amendments are also being negotiated in line with the National Assembly's schedule. Following the passage of the Capital Markets Act amendment on September 26th, related follow-up measures will also be implemented. Amendments to enforcement decrees and regulations related to the short selling IT system, internal control standards, securities firms’ verification, and restrictions on loan repayment periods will soon be publicly notified.

The Financial Services Commission stated, "The government and related agencies will make every effort to ensure that short selling can resume by the end of March next year through related system improvements and the establishment of the short selling IT system."