• SK FSC, SK FSS launched short sale reform measures to resolve illegal/unfair issues.
• SK FSC, FSS extended the short selling ban until 30 March 2025 same day.
• Follows SK FSS April 2024 issued measures re trade prevention system.

Electronic Short Sale Processing System

• Institutional investors will be required to set up a short selling processing system.
• Plus set up their own balance management system to ensure electronic and real-time management of balance of stocks available for short sale; prevent naked short sale.
• Institutional investors shall establish internal control standards to prevent naked short sales, including a specified division to oversee short sale activities in the organization.

Stock Repayment

• Stock repayment period for short sale order can be extended for 90 days each time.
• For stock lending to institutional investors, lenders may continue to issue a notice of recall upon which borrowers are required to immediately return their borrowed stocks.
• However, a minimum of 90-day repayment period is guaranteed for retail investors.

Strengthen Penalties

• The level of fines imposed will be increased from the current level of 3 to 5 times of the amount of unfairly gained profits, to 4 to 6 times of the unfairly gained profits.
• When the total amount of unfairly gained profits is KRW 500mn or more, an aggravated penalty will be applied for imprisonment, for uniform penalty systems.
• Companies found to have engaged in illegal short sale or unfair trading activities will be prohibited from trading financial investment products in domestic market and from serving as an executive for financial companies or listed companies for up to 10 years.

Other Measures

• Net short position balance reporting standards will be tightened from 0.5% or more of total issuance volume to 0.01% of total issuance volume or KRW 1bn or more.
• Investors with short sale orders, will be prohibited from acquiring the convertible bonds (CB) or bonds with warrants (BWs) that are issued by the same company.
• From the time the information about their CB or BW issuance plan is disclosed to the public until their conversion price is announced, to prevent convertible arbitrage.

Implementation Plan

• SK FSC will work with the National Assembly and support the legislative process.
• SK FSC plans to make relevant changes to subordinate regulations to lower retail investors’ collateral ratio and to strengthen disclosure requirement by Q3 2024.
• SK FSS will introduce guidelines to facilitate compliance from institutional investors.
• KRX's naked short selling detection system is expected to be ready by Mar. 2025.
• Upgrades to the securities lending system to limit institutional investors’ stock repayment period, is expected to be completed by the third quarter of 2024.