Seoul mandating report of lengthy short position to clamp down on speculative sale

Both foreign and domestic institutions maintaining shorting position in borrowed Korean stocks for more than 90 days must report to Seoul authorities in a move aimed to curb speculative shorting amid increasing downside for Korean shares.

Financial Services Commission posted planned revisions in the financial investment service regulation, which would require stock traders to report to authorities if borrowed shares are held in the shorting account for 90 days or longer. The measures will take effect after tapping opinion until Oct. 7.

The measure is a follow-up to the financial authorities’ plan announced in late July to strengthen monitoring on illegal practice of short selling shares.

By placing 90-day limit on short selling, the financial authorities will be able to better monitor speculative trading activities and thus reduce investment risk for retail investors, said the FSC.

In addition, the short sellers must include debit and credit balances when reporting net balance on short selling shares.

If volatility continues, Seoul authorities could put the lid back on short sale as a part of emergency rescue to the stock markets that have retreated to early pandemic levels.

Short selling is a legitimate trading strategy that bets on a decline in stock price. Short sellers profit by borrowing shares and then returning them with shares purchased at a lower price. The practice is accessible to mostly big institutional investors that it is blamed for massive selloffs and high volatility in the Korean market.

FSC Chairman Kim Joo-hyun in a press interview last month said “short selling ban is not usual but it is possible under exceptional circumstances.”

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