Ahead of Short Selling Resumption... Exchange "Strengthens Crackdown on Illegal Short Selling"

Continuous Monitoring of Abnormal Short Selling Stocks
Shortened Inspection Cycle for Illegal Short Selling

On the 26th, the Market Surveillance Committee of the Korea Exchange announced that it will implement a surveillance system to strengthen the detection of short selling in line with the resumption of short selling on the 3rd of next month. (Source=Korea Exchange)

[Asia Economy Reporter Gong Byung-sun] Ahead of the resumption of short selling, a surveillance system to detect illegal short selling will be fully activated.

On the 26th, the Korea Exchange Market Surveillance Committee (MSC) announced that it will implement a surveillance system to strengthen the detection of illegal short selling in line with the resumption of short selling on the 3rd of next month. This is an action by the Exchange to alleviate investors' anxiety and concerns about short selling.

The Exchange decided to continuously monitor abnormal short selling stocks to detect illegal short selling and respond to unfair trading using short selling. To this end, the special inspection team established on February 22 was expanded and reorganized into a department-level Special Short Selling Inspection Group. The organization, which previously had 7 members in one team, will grow to 15 members across 1 division and 2 teams.

A short selling monitoring and detection system will also be implemented. A monitoring system has been established that allows real-time inquiry of short selling quotes by stock and enables monitoring of sudden increases in short selling or top stocks by short selling volume. Additionally, the Exchange plans to use this system to detect suspicious illegal short selling transactions by linking and cross-checking the Exchange’s quote, transaction information, and other trading data such as securities lending transactions. To this end, the Exchange has also introduced detection systems such as analysis of suspected naked short selling quotes and extraction of ineligible uptick rule exception quotes.

The Exchange will also strengthen inspections of short selling violations. For this purpose, members are required to directly inspect suspicious illegal short selling transactions and report the inspection results to the MSC. Furthermore, a basis has been established allowing the MSC to request related materials such as borrower contracts from members to directly verify short selling violations.

The inspection cycle for illegal short selling will be shortened. The inspection cycle for accounts with insufficient settlement quantities has been drastically reduced from six months to one month. Monthly inspections will also be conducted on pre-sale and post-purchase orders, which have been pointed out as blind spots for detecting illegal short selling, and naked short selling brokers found will be reported to financial authorities.

Moreover, the Exchange plans to strengthen thematic inspections of short selling, conduct regular inspections of market makers’ short selling violations, expand rewards for reporting illegal short selling, and distribute statistics related to short selling and the designation status of overheated short selling stocks. To more rigorously monitor unfair trading using short selling, the criteria for judging unhealthy trading in stocks with the largest price declines and top short selling transaction volumes will be strengthened. Additionally, accounts that build large short selling positions immediately before the announcement of adverse undisclosed information will be investigated for possible use of undisclosed information.

The Exchange stated, “We have urged member firms to thoroughly inspect accounts suspected of short selling violations,” and added, “We will further advance surveillance techniques to respond to illegal short selling and alleviate investors’ distrust and anxiety about short selling.”

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