Yoon "Will Eradicate"... Government Floods with Measures Including Forfeiture of Illegal Gains from Short Selling (Comprehensive)

[Asia Economy Reporter Ji Yeon-jin] The government is pushing for measures to confiscate profits obtained through illegal short selling and hidden assets. As criticism from individual investors against Korea Investment & Securities for violating short selling regulations intensifies, a comprehensive plan to strengthen inspection and punishment of illegal short selling has been announced.

On the 28th, the Financial Services Commission held a meeting attended by Chairman Kim Ju-hyun, Financial Supervisory Service Governor Lee Bok-hyun, Shin Bong-su, Head of the Anti-Corruption and Strong Crime Division at the Supreme Prosecutors' Office, and Kim Geun-ik, Chairman of the Market Surveillance Committee at the Korea Exchange, to discuss measures to detect and punish illegal short selling and improve related systems, subsequently unveiling the comprehensive plan.

First, the government plans to amend laws to enable confiscation of criminal proceeds and hidden assets obtained through illegal short selling. In addition, the Southern District Prosecutors' Office joint investigation team will conduct strict investigations using the fast-track procedure in cases of significant damage. The fast-track procedure allows for a swift transition to investigation at the early stage of unfair trading cases and timely enforcement actions.

Yoon Byung-jun, Deputy Director of the Anti-Corruption Division at the Supreme Prosecutors' Office, stated at an afternoon briefing, "Although regulations punishing short selling were introduced in March last year, the Southern District Prosecutors' Office joint investigation team responsible for securities crime investigations was disbanded and has only been restored for about a month," adding, "With the restoration of the joint investigation team, there will be greater awareness of the severity of damages caused by short selling, and more attention will be paid to this area, so the approach will differ from before," expressing a strong intention for strict punishment.

The government also plans to establish and expand a dedicated organization responsible for investigating illegal short selling. Currently, illegal short selling is monitored by a dedicated team under the Korea Exchange established last year. A planning and audit team will be newly created, increasing personnel from 13 to 17. The short selling investigation team will be upgraded to an investigation task force. Furthermore, the short selling order process and internal control systems will be inspected for securities firms with high short selling volumes. Lee Seung-beom, Executive Director of the Korea Exchange, said, "Since the short selling monitoring team was established last year, we have been receiving related information once a month," adding, "We will directly visit sites to compare loan records with short selling activities."

Major improvements will also be made to the short selling system. Detailed loan information reporting will be mandated for long-term loans and large-scale short selling investors holding positions for over 90 days. Loan information refers to records of stocks borrowed to conduct short selling. The designation system for overheated short selling stocks will be significantly expanded. A new criterion for excessive short selling ratio (over 30%) will be introduced, and if the stock price falls by more than 5% on a short selling ban day, the ban period will be automatically extended. The collateral ratio for individual investors' short selling will be lowered from 140% to 120%, and loan transactions without repayment period restrictions will be activated for individual investors meeting professional investor requirements.

Earlier, Financial Services Commission Chairman Kim Ju-hyun emphasized, "Without eradicating illegal short selling and illegal activities using short selling, it is very difficult to secure trust in the capital market," adding, "As the President instructed yesterday, this time we must root out illegal activities surrounding short selling with determination, and related agencies must closely cooperate to strictly punish illegal acts and swiftly implement system improvements." Financial Supervisory Service Governor Lee Bok-hyun and Supreme Prosecutors' Office Anti-Corruption Division Head Shin Bong-su proposed actively utilizing the fast-track procedure for illegal short selling cases.

This comprehensive plan came after it was belatedly revealed that Korea Investment & Securities was fined 1 billion KRW by the Securities and Futures Commission on February 23 for violating Article 180, Paragraph 1 of the Capital Markets Act, which includes short selling restriction regulations, sparking public outrage among individual investors.

According to short selling data obtained by the Korea Federation of Investment Associations through an information disclosure request to the Financial Supervisory Service, Korea Investment & Securities sold approximately 140 million shares of about 900 companies without indicating they were short sales from February 2017 for about three years and three months. Article 208 of the Enforcement Decree of the Capital Markets Act requires investors who entrust the sale of securities to notify the brokerage whether the sale is a short sale, which was violated. The largest volume of shares traded as regular sales despite being short sales was Samsung Electronics with 25.52 million shares, followed by SK Hynix (3.85 million shares) and Mirae Asset Securities (2.98 million shares).

The Financial Supervisory Service has been publicly disclosing sanctions against financial institutions and their executives on its website for five years since 2002 to enhance the effectiveness of disciplinary actions. However, the recent short selling violation and sanctions against Korea Investment & Securities were not disclosed.

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