Short selling in Korea to resume after March next year

June 13, 2024

The South Korean government, in collaboration with the ruling People Power Party, has introduced sweeping reforms to short selling regulations aimed at leveling the playing field in the stock market. These reforms, unveiled on the 13th after a session at the National Assembly, target disparities between institutional and individual investors in short selling transactions.

Key reforms include imposing a maximum repayment period of 12 months for institutional investors engaged in short selling, aligning their terms with those of individual investors to prevent perceived advantages. A new computerized monitoring system will be implemented to prevent naked short selling, enhancing real-time oversight and preemptive blocking of illegal transactions, particularly by institutional investors. Institutions must establish internal balance management systems and will face rigorous inspections to prevent naked short selling.

To enhance accessibility, the cash collateral ratio for individual margin trading will be reduced to 105%, with favorable conditions for trading KOSPI 200 stocks. Penalties for illegal short selling will be significantly increased, with fines up to 6 times the unfair profit and potential criminal penalties based on severity. The temporary ban on short selling will continue until March next year to coincide with the NSDS's completion, ensuring market integrity.

These reforms aim to foster a fairer and more transparent trading environment, promoting stability and safeguarding investor interests against illicit practices.