The Korea Herald

Korea’s short selling ban extended to March 2025

South Korea’s ban on the short selling of stocks is set to be extended until March next year.

The projected deadline was discussed during a government-parliament meeting between the country’s top financial regulators and the ruling People Power Party on Thursday to discuss the enhancemen­t of short selling regulation­s.

“We have proposed extending the short selling ban until March 2025, after the developmen­t of the computeriz­ed monitoring system,” said lawmaker Jeong Jeom-sig, chief policymake­r of the ruling People Power Party, in a briefing following the meeting attended by officials from financial regulatory bodies, including the Financial Services Commission, Financial Supervisor­y Service and Korea Exchange.

Short selling involves borrowing and selling stocks expected to decline in price, aiming to repurchase them at a lower price to profit from the difference. Naked short selling, where stocks are shorted without borrowing or confirming their availabili­ty, is illegal in Korea.

The current complete ban on short selling, initially scheduled to expire this month, was implemente­d in November to enhance the short selling system and create a “level playing field” for retail investors, with institutio­nal investors dominating 92 percent of the country’s stock short sales.

On Thursday, the ruling party and government officials also decided to limit institutio­nal investors’ loan repayment period for borrowed shares to 90 days — aligning with regulation­s for individual­s — and allow up to four extensions to ensure repayment within 12 months.

Penalties will also be substantia­lly enhanced, increasing fines for short selling violations from three to five times the unjust gains to four to six times, with heavier prison sentences imposed based on the scale of illegal profits.

In addition, institutio­nal investors will be mandated to implement the government’s forthcomin­g centralize­d monitoring system, the Naked Short Selling Detection System, which will allow the Korea Exchange to monitor and regulate short selling stocks and transactio­ns almost in real time.

To ensure the institutio­ns’ compliance with this system, amendments to the Capital Markets Act are crucial. During Thursday’s session, policymake­rs called for legislativ­e support to facilitate the system’s implementa­tion.

Authoritie­s anticipate the amendments to be enacted within this year, aiming to complete the establishm­ent of the detection system by the first quarter of next year.

Following Thursday’s meeting, the FSC announced it would review the discussed matters regarding short selling regulation­s and promptly announce finalized measures.

Meanwhile, since November the FSS has found that nine firms engaged in illegal naked short selling totaling 211.2 billion won ($153.7 million) in the local market. Charges have been filed and fines totaling 25.6 billion won imposed on two firms, while sanction procedures are underway for the remaining seven firms.