• SK FSC said revisions to the Capital markets act to improve the short selling system have been approved on 26 September 2024 at the National Assembly's plenary session.
• Follows SK FSC June 2024 launched short selling reform measures.
• Also follows SK FSS June 2024 proposed short selling guidelines.
• Follows SK FSS September 2024 published integrated short selling guidelines.

Key Revisions

• Institutional and corporate investors who intend to engage in short selling transactions shall establish electronic short selling processing systems and internal control standards.
• Securities houses shall verify whether investors have fulfilled these legal obligations.
• Failure to comply with these legal obligations may result in a fine for negligence of maximum KRW 100mn even when there is no occurrence of naked short sale activity.
• Details re measures intended to prevent naked short selling and their scope of application will be specified in the Enforcement decree, which will be based on the previously announced short sale reform plan and the guidelines prepared by SK FSS.
• Stock repayment period for institutional investors will be restricted to max. 12 months with 90-day extension each time to make short selling transaction conditions equal for retail and institutional investors; non-compliance subject to fine of max. KRW 100mn.
• Up to 5-year ban on trading financial investment products, being appointed/serving as an executive at listed companies, will be introduced for unfair trading, illegal short selling.
• Payment freeze of 6 months with an extra six-month extension on accounts suspected for being used in unfair trading and/or illegal short selling will also be introduced.
• Severity of monetary penalties imposed on unfair trading/illegal short sale will be increased from current 3-5 times the amount of unfairly gained profits to 4-6 times.
• Illegal short selling will also be subject to aggravated penalties for imprisonment.
• Short sellers will be banned from acquiring convertible bonds (CBs) or bonds with warrants (BWs), where they engaged in short selling of stocks after a company disclosed its CB or BW issuance plan but prior to the announcement of its issue price.

Next Steps

• Revised act will be effective from 31 March 2025 but restrictions on trading, executive appointment, and payment suspension will take effect 6 months after promulgation.
• Revisions to Enforcement decree and regulations, aimed at strengthening disclosure of short selling balances and lowering short selling collateral ratio of individual investors to the level of institutional investors, will be completed in October 2024.