South Korean Authorities Urges Foreign Listed Firms to take Precautions on Short Selling

South Korea's financial market regulator urged foreign firms trading on the country's stock exchange on Sept 7 to tighten internal controls to prevent illegal naked short-selling. The message was delivered by the Financial Supervisory Service (FSS) during a meeting with compliance officers from 23 foreign investment banks.

The Capital Markets Act in South Korea prohibits naked short-selling of stocks, which occurs when an investor sells shares without first borrowing or determining whether they can be borrowed. So far this year, the FSS has recorded 24 cases of illegal short-selling, the majority of which have been committed by foreigners, compared to 28 for the entire year of 2022 and 14 in 2021.

This year, South Korea implemented a number of regulatory reforms for its stock market, including harsher penalties for violations of naked short-selling.