Korea to limit short-selling repayment extensions

[Courtesy of Financial Services Commission]

The South Korean government will limit the number of repayment extensions for short-selling by institutional investors from 2025, with short-selling set to resume in the first quarter of that year.

Sources indicated on Tuesday that the government and the ruling party will announce new short-selling measures after a government-ruling party meeting on Thursday. The plan includes limiting the repayment period for institutional investors‘ securities lending and borrowing to the same 90 days that individual investors are subject to and restricting the number of extensions. The policy advisory body under the Financial Services Commission will determine the allowed number of repayment extensions.

This measure aims to “level the playing field,” addressing concerns that individual investors are disadvantaged compared to institutions, who currently have no constraints on their repayment periods in short selling.

The government and ruling party also plan to lift the current short-selling ban entirely after introducing the Naked Short Selling Detecting System (NSDS) at the Korea Exchange in March 2025, which is a prerequisite for lifting the ban.

The NSDS will automatically detect naked short-selling transactions by continuously monitoring balances, transaction details, and trading activities of short-selling entities. Financial authorities expect it to take ten months to build the system and for it to be fully operational by March 2025.

Despite the decision to resume short-selling once the monitoring system is in place, the short-selling ban on the Korean stock market will continue for at least 16 months. The government and ruling party aim to include the finalized measures in a draft amendment of the capital market law that will be proposed to the 22nd National Assembly.