South Korea prepares new monitoring system to detect illegal stock short selling By Reuters

South Korea prepares new monitoring system to detect illegal stock short selling By Reuters

SEOUL (Reuters) – South Korea’s financial market watchdog said on Thursday it has prepared a new monitoring mechanism to detect illegal short-selling transactions in the nation’s stock market.

Under the new mechanism, all short sale transactions carried out by institutional investors will be processed electronically and then filtered through a central detection system set up within the exchange operator to prevent illegal transactions, the Service said Financial Supervisory Authority (FSS) in a press release.

In South Korea, short selling of stocks, in which an investor sells shares without first borrowing them or determining whether they can be borrowed, is prohibited by the capital markets law.

In a speech prepared Thursday for a discussion forum to explain the new system to market experts and retail investors, FSS Governor Lee Bok-hyun said: “Illegal short selling has been one of the main factors behind the Korean discount by undermining the credibility of the market among domestic investors. “.

“With this two-tier verification system working properly, we hope it will eliminate illegal short selling,” Lee said.

South Korea is making various reform efforts to address the so-called “Korean discount” in the domestic stock market, a tendency for domestic companies to have lower valuations than their global counterparts due to factors such as low dividend payouts and opaque governance structures.

Last November, South Korea imposed a sudden ban on short selling of stocks in the first half of this year after discovering illegal trades carried out by several foreign investment banks. Financial authorities have since stated that the ban will remain in force until adequate measures are prepared to prevent the practice.

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South Korea also proposed easing stock short-selling rules for retail investors, while introducing a new borrowing limit for institutional and foreign investors once their ban is lifted, to promote ” level playing field” in the market.

The FSS said in the statement that it would implement the new monitoring system after finalizing it quickly, without providing a date.

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