FSS to stop illegal short selling through new detection system

Financial Supervisory Service Gov. Lee Bok-hyun speaks in a meeting in Yeouido, western Seoul, on April 18. [YONHAP]

Korea’s financial watchdog is developing a monitoring system designed to detect illegal stock short selling in an attempt to root out the practice.

The Financial Supervisory Service (FSS) said Thursday the Korea Exchange will set up a platform on its server that will collect short selling data on stock trading records from 21 foreign and 78 local institutions.

It will take around a year for the naked short selling detection system to be set up, according to the FSS.

Naked short selling, an illegal practice in Korea, is shorting stocks without first borrowing them. Authorities banned the short selling of shares through June after finding some global investment banks made such trades.

Financial authorities said the ban will stay in place until adequate prevention measures are adopted.

The FSS reportedly imposed fines on BNP Paribas and HSBC Holdings for naked short selling.

President Yoon Suk Yeol said in January that the short selling ban will stay in place until an electronic system that can remove the side effects is established.

Short selling has been pointed to by retail investors as a primary reason driving down Korea’s stock price. FSS Gov. Lee Bok-hyun said that “illegal short selling has hindered domestic investors’ trust in the market, playing a key role in the Korea discount,” an undervaluation of domestic stocks.

BY JIN MIN-JI [jin.minji@joongang.co.kr]