Financial Services Commission Completes Regulatory Amendments Ahead of Short Selling Resumption

The Financial Services Commission has completed the revision of regulations for institutional improvements ahead of the resumption of short selling at the end of this month.

On the 5th, the Financial Services Commission announced that it has approved the amendment to the Financial Investment Services and Capital Markets Act following the short selling system improvement and the amendment to the Korea Exchange Market Surveillance Regulations, which are scheduled to be implemented from the 31st of this month.

The amendment to the Financial Investment Services and Capital Markets Act specifies measures to prevent naked short selling. Corporations and institutional investors must manage sell orders within the balance range for each independent trading unit, market making/liquidity provision accounts, and accounts such as funds, discretionary accounts, and trusts, according to internal control standards to prevent naked short selling. Additionally, information regarding the time, stock, quantity, and responsible employees for each short selling order must be retained for five years.

Institutional investors establishing a short selling electronic system are required to obtain a short selling registration number (ID) issued by the Financial Supervisory Service and submit it when placing trading orders. Furthermore, securities firms directly submitting short selling orders must verify every 12 months whether measures to prevent naked short selling have been implemented in a department independent from short selling transactions and report to the Financial Supervisory Service.

Along with this, a basis has been established allowing the Korea Exchange Market Surveillance Committee to request necessary data for operating the Centralized Inspection System (NSDS).

The Financial Services Commission explained, "The revision of regulations for improving the short selling system is in its final stage, and the government and related organizations are making every effort to ensure the effectiveness and stability of the short selling electronic system," adding, "A plan will also be prepared to temporarily expand the designation system for overheated short selling stocks to buffer the volatility of individual stocks that may occur upon the resumption of short selling."