South Korea confirms fresh short selling rule deadline
10 February 2017 Seoul
Image: Shutterstock
South Korea鈥檚 financial regulator has revealed further details of its stricter short selling rules, set to come into force on 27 March.
The Korean Stock Exchange will be handed new powers to withdraw "overheated" stocks that receive 鈥渆xtraordinary increases in short selling and sharp falls in prices鈥� during a single day for a 24-hour cooling off period, as outlined in a statement by Korea鈥檚 Financial Services Commission (FSC) in November 2016.
Detailed conditions for the definition of 鈥渙verheated鈥� will be determined and announced soon.
In addition, the new rules dictate that securities to be short sold must be pre-delivered to the client鈥檚 account. This amends the current rule that entities that violate short selling rules must submit the 鈥渁greement of securities borrowing鈥� or to pre-deliver securities to be sold, before making further short-sell trading.
According to the Korea Exchange the new rules will help to mitigate information asymmetry in short selling, while forcing short selling violators to pre-deliver securities prior to short-selling will enhance the effectiveness of penalties and bolster market transparency.
The FSC promised to strengthen sanctions against those who violate its short selling rules.
Rules such as the prohibition of uncovered short-selling and up-tick rules will be subject to 鈥渉eftier fines鈥� than those imposed on other violations.
In addition, those that short a stock during the period of paid-in capital increase will be barred from buying the newly-issued stocks.
Furthermore, price manipulative activities exploiting short-selling positions will be added to types of 鈥榤arket disruptive activities鈥� under the Financial Investment Services and Capital Markets Act.
The rule changes come as part of wider-spread reforms of South Korea鈥檚 financial framework.
Previously, in late 2016, the deadlines for reporting and disclosure of short positions in large amounts or by shares was shortened from T+3 to T+2.
The Korean Stock Exchange will be handed new powers to withdraw "overheated" stocks that receive 鈥渆xtraordinary increases in short selling and sharp falls in prices鈥� during a single day for a 24-hour cooling off period, as outlined in a statement by Korea鈥檚 Financial Services Commission (FSC) in November 2016.
Detailed conditions for the definition of 鈥渙verheated鈥� will be determined and announced soon.
In addition, the new rules dictate that securities to be short sold must be pre-delivered to the client鈥檚 account. This amends the current rule that entities that violate short selling rules must submit the 鈥渁greement of securities borrowing鈥� or to pre-deliver securities to be sold, before making further short-sell trading.
According to the Korea Exchange the new rules will help to mitigate information asymmetry in short selling, while forcing short selling violators to pre-deliver securities prior to short-selling will enhance the effectiveness of penalties and bolster market transparency.
The FSC promised to strengthen sanctions against those who violate its short selling rules.
Rules such as the prohibition of uncovered short-selling and up-tick rules will be subject to 鈥渉eftier fines鈥� than those imposed on other violations.
In addition, those that short a stock during the period of paid-in capital increase will be barred from buying the newly-issued stocks.
Furthermore, price manipulative activities exploiting short-selling positions will be added to types of 鈥榤arket disruptive activities鈥� under the Financial Investment Services and Capital Markets Act.
The rule changes come as part of wider-spread reforms of South Korea鈥檚 financial framework.
Previously, in late 2016, the deadlines for reporting and disclosure of short positions in large amounts or by shares was shortened from T+3 to T+2.
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