Strengthening Penalties for Illegal Short Selling Fines... Legislative Notice for Enforcement Decree of the Capital Markets Act

[Asia Economy Reporter Park Jihwan] Financial authorities will significantly strengthen penalties for illegal short selling starting in April. When illegal short selling is detected, fines of up to 500 million KRW or up to 1.5 times the unfair gains will be imposed. Participation in rights offerings will be restricted if short selling occurs during the rights offering period. For investors who borrow from securities firms for the purpose of short selling, specific contract details must be retained for five years.

On the 13th, the Financial Services Commission announced a draft partial amendment to the Enforcement Decree of the Act on Capital Market and Financial Investment Business (Capital Market Act) containing these provisions for public comment. This amendment aims to specify matters delegated by law and those necessary for law enforcement.

The amendment first establishes criteria for imposing fines on illegal short selling. For illegal short selling, fines of up to 500 million KRW or up to 1.5 times the unfair gains will be imposed within the order amount range (participation in rights offering after short selling). The Financial Services Commission plans to impose fines by comprehensively considering the short selling order amount and profits gained from the violation. The specific fine amount will be calculated by considering the statutory base amount and the imposition ratio specified in supervisory regulations (Capital Market Investigation Business Regulations).

If short selling occurs during the rights offering period, participation in the rights offering will be restricted. The amendment includes provisions that restrict participation if short selling occurs from the day after the rights offering plan is disclosed until the last day of the target trading period for calculating the issue price (the issue price calculation start date, as stated in the disclosure documents).

For securities lending transactions intended for short selling, contract details must be retained for five years, and the financial authorities must be able to immediately submit the relevant information upon request. The amendment requires retention of information such as the securities lending transaction item and quantity, contract date and time, counterparty, lending period, and fee rate. If contracts are made via messenger or email, screenshots and email transmission records must be stored electronically or by computer systems in a way that prevents tampering or alteration.

Additionally, criteria for imposing fines for failure to retain or submit securities lending transaction information have been established. Within the statutory maximum amount, the amendment sets the fine base amount at 60 million KRW for corporations and 30 million KRW for non-corporate entities.

The public comment period will last 20 days until the 2nd of next month. During this period, those with opinions may submit written statements expressing support or opposition to the proposed amendments to the Financial Services Commission.

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