The financial regulatory authorities have officially commenced discussions on the introduction of a computerized system to address short selling concerns. All eyes are on whether the initiative will lead to the establishment of a system capable of detecting and preventing illegal short selling in real time.
The Financial Supervisory Service (FSS) and the Korea Exchange (KRX) convened the inaugural meeting of the task force dedicated to establishing a computerized system to prevent naked short selling on Nov. 23. Participants included the Korea Financial Investment Association, Korea Securities Depository, Korea Securities Computer Corporation (KOSCOM), domestic and international securities firms, asset management companies, and more. This marks the official commencement of discussions on the development of the computerized system, which was planned to begin after the decision on Nov. 6 to suspend short selling.
Earlier, the ruling People Power Party, the Financial Services Commission, and the FSS discussed the “direction for improving the short selling system” and “investigation status and future responses to illegal short selling” at a meeting of the ruling party-government consultation on Nov. 16. This action follows President Yoon Suk-yeol’s instruction on Nov. 14 to “correct the tilted playing field and prepare solutions to protect individual investors.”
As a result of the discussions, the government and the ruling party decided to push for the standardization of repayment periods and collateral ratios, along with the implementation of a computerized system. Specifically, they compelled institutional investors to establish computer systems and develop internal control standards to prevent illegal short selling. At the time of opinion gathering in 2020, it was concluded that building a real-time system to block illegal short selling was difficult. As of the present, three years later, it has been decided to conduct additional reviews on whether it can be technologically implemented.
In this regard, the FSS and the KRX held discussions with industry representatives on Nov. 23 to explore specific measures for preventing illegal short selling. The discussions focused on the internal computer system development strategies for institutional investors engaging in short selling transactions and the practical implementation of a real-time blocking system for naked short selling.
It has been decided to form a practical team within the task force for building a computerized system to prevent naked short selling and to hold meetings every other week. The FSS plans to establish a “short selling computer system support team” to actively support the task force. The support team will deploy IT and foreign language specialists to assist in system development and facilitate communication with global IBs.