10-day Ban on Short Stock Selling Slated for Oct. 13

The domestic stock market will impose a 10-day ban from Oct. 13 on short selling of certain stocks will be imposed. Securities companies must also confirm if investors can pay when they conduct short selling transactions.

The Financial Services Commission yesterday announced a plan to strengthen regulation of short selling, with the new rules to take effect Oct. 13 after the revision by the Korea Exchange.

Under the new regulations, short selling of stocks listed on the benchmark index KOSPI whose amount of short selling exceeds five percent of the combined amount of transactions over the past 20 trading days (three percent for stocks on the KOSDAQ) will be banned for 10 days. Thirty-six stocks on the KOSPI and nine on the KOSDAQ will be affected.

Investors engaged in loan transactions must also suggest sureties amounting to 90-110 percent of a contract’s value, but this will rise to 140 percent.

Stock brokerages must also confirm if investors can pay after handling short selling orders. Until now, they have been exempt from the process when handling short selling orders placed by “qualified” institutional investors with good credit ratings.

The Financial Supervisory Service announced the results of its analysis of short stock selling of 45 securities firms and related agencies. Song Gyeong-cheol, deputy governor of the financial watchdog, said, “After checking the cases in question, we’ll pursue disciplinary action against brokerages that violated regulations. We found out that foreign brokerages tended to violate regulations more frequently than domestic ones.”

sanjuck@donga.com jarrett@donga.com