Financial Regulator to Strengthen Rules on Short Selling

South Korean financial authorities are finally moving to impose severe punishment on illegal short selling. They will draw up a bill by the end of July to revise the current short selling regulations.

The authorities are planning to make violators of the short selling rules subject to imprisonment for up to 10 years and fines that are 1.5 times higher than the gains earned through illegal shorting selling.
 

These decisions were made at a meeting of officials from the Financial Services Commission (FSC) on June 27, which was presided over by Kim Hak-soo, a standing commissioner of the Securities and Futures Commission (SFC). The officials discussed ways to improve the stock trading system and agreed to impose stricter penalties on illegal short selling.
 

The FSC’s move came following the recent violation of the short selling regulation by the Seoul branch of Goldman Sachs Group. The case highlighted the soft punishment for violators of the short selling regulations. So the authorities have decided to raise maximum punishment for violators from the current fines of up to 100 million won (US$89,286) to imprisonment for up to 10 years.

In addition, the FSC will levy a fine 1.5 times the amount of unfair profits made through illegal short selling transactions. Those who violate the regulations on short selling unintentionally will be punished for gross negligence when they repeatedly do so.

An official from the FSC said, “We will establish a legal basis to punish violators of the short selling regulations with the highest level of criminal punishment under the law on capital market. We will prevent short selling by strengthening the level of punishment to the same extent as unfair trading practices.”