FSC to Toughen Regulations on Short-selling from Next Year

Starting from the end of next month, South Korea’s financial authorities will expand the labeling standards for stocks that experience excessive short-selling. They will also toughen the penalties against those who repeatedly violate short-selling regulations by the end of the fourth quarter this year even if they are unintentional.

On August 23, the Financial Services Commission (FSC) announced its plan to ease the short-selling’s proportion to the entire stock trading with the Financial Supervisory Service (FSS) and the Korea Exchange and increase fines on investors who violate short-selling regulations.

First of all, the FSC has decided to change the increase of short-selling’s proportion to the increase of trade values. It will also lower the short-selling’s proportion from the current 20 percent to 18 percent in the KOSPI market and from the current 15 percent to 12 percent in the KOSDAQ market.

With the improved plans, the FSC expects to see more stocks be labeled as ones experiencing short-selling. There was one short-selling case in 16.6 trading days in the KOSPI and 13.8 trading days in the KOSDAQ in the past five months. However, there will be one short-selling case in 5.2 trading days in the KOSPI and 0.8 trading day in the KOSDAQ from the end of next month.

In addition, the FSC plans to toughen the penalties against those who violate short-selling regulations. Currently, the regulatory agency applies different penalties depending on whether the violation was intentional or a mistake. However, those penalties will be split into three decisions – intentional, light and heavy – which means a heavier penalty will be imposed for repeat offenses, even if they were unintentional. The maximum limit on the fine will be doubled from 50 million won (US$44,346) to 100 million won (US$88,692), with an additional 50 percent if the short-selling was done for unfair business gain.