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Newsletter | February 2014, Issue 1
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SECURITIES |
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Change in Short Sale Rules |
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On November 13, 2013, the Financial Services Commission announced the Measures for Improving the Short Sale System ("Measures"). The Measures immediately lifted the ban on short selling of shares in financial companies. Such ban had been in force since October 1, 2008.
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As summarized below, the Measures overall aim is to strengthen the regulation of and disclosure requirements applicable to short sale. The Measures are expected to be reflected in the Financial Investment Services and Capital Markets Act and other relevant regulations in the near future.
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Public Disclosure of Short Sale Position on Investor-by-Investor Basis: According to the Measures, an investor must post its short sale position on the website of the Korea Exchange if its position exceeds 0.5% of the total issued and outstanding shares of any particular issuer. The public posting must be made by 9 a.m. on the third business day from the day the investor’s position exceeds the 0.5% threshold. Subsequently, the investor must update the posting on short sale position if there is a change in the position amounting to 0.1% or more or if the position falls below the 0.5% threshold. The relevant laws and regulations are scheduled for revision during the first half of 2014.
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Stricter Regulation of Existing Short Position Reporting Requirement: (i) The Measures stipulate a basis to impose sanctions, such as a correction order or an administrative fine, on investors that violate the requirement to report short sale positions to the Financial Supervisory Service ("FSS"). This requirement has been in force since August 2012. The relevant laws and regulations are scheduled for revision during the first half of this year. (ii) Under the Measures, each short sale position report submitted to the FSS must also be publicly disclosed. The rules of the Korea Exchange are also expected to soon be amended to reflect this new public disclosure requirement. (iii) The FSS short sale reporting requirement will not apply to investors with a short sale position of less than KRW 100 million, even though the position may exceed the otherwise applicable reporting threshold of 0.01%. The Measures, on the other hand, require investors with a short sale position of KRW 1 billion or more to submit a report to the FSS regardless of whether the position exceeds the reporting threshold of 0.01% or not.
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