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Development of detection system against naked short selling completed

Published: 05 Jan. 2025, 16:15

SHIN HA-NEE
[email protected]

A pedestrian walks by an electronic board displaying closing rates of Korean stock markets at the Korea Exchange headquarters in western Seoul on Dec. 30, 2024. [NEWS1]

Korea Exchange completed the development of a centralized detection system for short-selling transactions aimed at preventing illegal trading by institutional investors, the country’s bourse operator said Sunday.

The Naked Short-Selling Detecting System (NSDS) will undergo a trial period starting Monday in cooperation with some 30 major domestic and global institutional investors, which account for over 90 percent of the total short-sale transactions, ahead of the planned lifting of the current ban on short selling on March 31.

Financial authorities have cited the system as one of the prerequisites for resuming short selling since the government temporarily banned short selling in November 2023 after uncovering illegal short sale cases by global investment banks.

The ban, initially set to be lifted by June last year, has been extended to the end of March this year.

“We expect the establishment of the NSDS would be able to prevent any naked selling practices and enhance the market’s trust in short selling practices,” said the Korea Exchange in a release.

The NSDS will be linked to separate electronic balance management systems set up by each institutional investor during a trial phase through February. After completing the trial run, the Korea Exchange plans to conduct a mock market test to ensure the stability of the integrated systems from March 6 to 26, before the system’s operation becomes mandatory on March 31.

A detailed operational guideline for the system will be published in Korean in January, followed by an English version in February. The Korea Exchange held four presentation sessions to introduce the NSDS to domestic and international institutions from September to December.

Naked short selling, an illegal practice in Korea, is shorting stocks without first borrowing them. In June, the government announced its plan to implement a significant overhaul in the short-selling system, including introducing the NSDS and bolstering penalties on illegal trading.

BY SHIN HA-NEE [[email protected]]