Strengthening Punishment for Illegal Short Selling... Capital Markets Act Amendment Passed by National Assembly

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[Asia Economy Reporter Park Jihwan] Measures to strengthen penalties for illegal short selling by imposing fines and criminal penalties of 3 to 5 times the amount of unjust gains are being introduced.

The Financial Services Commission announced on the 9th that the amendment to the Capital Markets Act containing these provisions was passed at the National Assembly plenary session on the same day.

According to the amendment, the penalty for illegal short selling will be raised from the current maximum fine of 10 million KRW to a surcharge within the range of the short selling order amount. Fines will be imposed up to 3 to 5 times the amount of gains. The FSC expects this to have a preventive effect by urging investors to be cautious to avoid violations caused by mistakes or errors.

In the future, investors who enter into securities lending contracts for the purpose of short selling must keep the details of the lending contract, such as date, stock, and quantity, in a tamper-proof manner for five years.

Also, if short selling of a company's stock occurs in the stock market after a paid-in capital increase plan is disclosed, participation in the capital increase will be restricted. Violations will result in a surcharge of up to 500 million KRW or up to 1.5 times the amount of unjust gains. However, exceptions will be made if it cannot be deemed that the short selling unfairly influenced the paid-in capital increase price. For example, cases where short selling was conducted after the capital increase plan disclosure but the same or greater quantity was purchased in the market before the new stock price calculation period will be regulated as exceptions in the enforcement decree.

The amendment to the Capital Markets Act will be enforced three months after its promulgation following the Cabinet meeting. An FSC official stated, "We plan to promptly proceed with follow-up work, including amendments to subordinate regulations such as enforcement decrees before the law takes effect next year," adding, "Together with the exchange, we will develop detection techniques for illegal short selling and expand monitoring infrastructure to effectively enforce the amended law."

This content was produced with the assistance of AI translation services.