KRX puts foot down on shorting

Korea’s stock market operator will strive to better oversee and regulate improper short selling in the wake of suspected cases in recent months, its chief said on Monday.

Current regulations prohibit so-called naked short selling, in which investors unload shares they do not own, but they permit investors to sell borrowed stocks. Despite the ban, some critics suspect that banned short selling actually takes place.

“We will launch an inspection of our own into irregular transactions of abusing short selling or violating relevant regulations,” Jung Ji-won, chief executive of the Korea Exchange, told reporters. “We will also take punitive measures against Goldman Sachs within this month for the recent case.”

In May, a short selling transaction was made by the Seoul branch of Goldman Sachs, but about 1.3 million shares worth about 6 billion won ($5.6 million) were not delivered for settlement until two days later, according to the Financial Supervisory Service.

The Korea Exchange plans to set up a system called K-ITAS, or KRX-Insider Trading Alarm Service, in the second half of this year. Its purpose is to prevent trading of shares by insiders. By tracing transactions of shares of a listed firm by its own employees, the system is supposed to notify the company of the details.

Joining the K-ITAS system is not required, but the Korea Exchange expects more than 50 listed companies to take part. Jung said this would do good not only for customers but also business entities themselves.

In April, 16 employees of Samsung Securities sold off mistakenly issued shares despite warnings by the brokerage firm, causing serious market chaos and financial losses for investors.

The Korea Exchange also plans to set up a special team this year to review the overall conditions for the possible establishment of a capital market in North Korea. Inter-Korean ties have dramatically improved in recent months, raising hopes for a surge in joint development projects.

“To raise large-scale funds for economic development in North Korea and its transition to the market economy, the establishment of a capital market will be necessary in the end,” Jung said. “We will be fully prepared for a quick response to such cases by maximizing know-how that we’ve accumulated by launching a stock market in Asian countries such as Cambodia and Laos.”

Yonhap