Korea to impose 90-day repayment window on institutional short sellers

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Korea to impose 90-day repayment window on institutional short sellers

Published: 04 Oct. 2024, 19:14 Updated: 04 Oct. 2024, 19:51

SHIN HA-NEE
shin.hanee@joongang.co.kr

Korea Securities Depository (KSD) headquarters building in Busan [KSD]

Korea will restrict the repayment period of institutional investors who borrow stocks to short, in an effort to “level the playing field” as the expiration date of its ban on short selling approaches.

A proposed revision, which was initially announced in June, will allow institutional stock borrowers a 90-day repayment period that can be extended up to four times. Institutional and foreign investors were previously granted an indefinite repayment period, which many criticized as creating an unfair market environment.

The Korea Securities Depository (KSD) and Korea Securities Finance Corporation, which handle securities lending, said Friday that they had developed an internal system and revised the rules necessary to implement the restriction. The system is currently undergoing trial, according to the KSD.

Korea Financial Investment Association has also revised its best practices accordingly, and brokerage firms will establish the required internal systems by the end of next March.

The announcement followed the National Assembly's passage of the revision to the Financial Investment Services and Capital Markets Act on Sept. 26, which will take effect on March 31 next year. The approval provided the legal ground for the borrowing period cap.

The KSD's revision to its operational rules, however, will require market participants to abide by the borrowing period cap starting this November.

Korea's financial authorities implemented a temporary ban on short selling last November after uncovering cases of naked short selling at global investment banks, a practice that is illegal in Korea. The ban, which was originally scheduled to last until last June, has been extended to March 2025.

The March target date is set to align with the scheduled completion of the Naked Short Selling Detecting System, designed to detect illegal shorts from institutional investors, which the Financial Supervisory Service and Korea Exchange are current developing.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]