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Newsletter | July 2016, Issue 2
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SECURITIES
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Detailed Rules on Disclosure and Reporting of Net Short Position Take Effect
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The amendment to the Financial Investment Service and Capital Markets Act (the “Amendment”), was passed at the National Assembly on March 3, 2016, and the Amendment was promulgated later that month (on March 29, 2016).
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In general, this Amendment:
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Codifies the short sale reporting obligation specified in the Enforcement Decree, and provides a clear legal basis to impose sanctions for violation.
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It also requires, among others, that investors with a large short sale position to make public disclosure of their identity and short sale position. The aim is to bolster transparency in the short sale market and discourage short selling for speculative purposes.
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1. Disclosure of Net Short Position
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The threshold for disclosure is 0.5% of the total issued shares.
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In case the net short position of an investor reaches the threshold, it must be publicly disclosed within 3 business days, and on each business day thereafter, so long as the net short position is equal to or greater than the threshold.
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The disclosure must include the specific securities concerned, along with the net short position, information regarding the investor and his/her/its agent’s identity, and the date the threshold was reached.
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The disclosure is to be made through the Korea Exchange.
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2. Reporting of Net Short Positions
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In addition to the current rule requiring a reporting in case the net short position is 0.01% or more of the total issued shares, investor must file a report in case the market value of the net short position is KRW 1.0 billion or more. This requirement stands even if the net short position is less than 0.01%.
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On the other hand, if the market value of the net short position is KRW 100 million or less, even if the net short position is 0.01% or more of the total issued shares, the reporting obligation does not apply.
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To that end, the Korean regulators have completed the public announcement of the proposed amendments to the Enforcement Decree of the Financial Investment Service and Capital Markets Act and the Financial Investment Business Regulation.
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