Strengthened Disclosure Requirement on Net Short Position Balance Effective December 1

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Disclosure Requirement on Net Short Position Balance to be Strengthened from December 1 Nov 05, 2024

The Financial Services Commission announced that a revision bill for the Enforcement Decree of the Financial Investment Services and Capital Markets Act (FSCMA) was approved by the government at the cabinet meeting held on November 5. This revision intended to strengthen the disclosure requirement on investors’ net short position balance is part of the comprehensive short sale reform measures announced on June 13, 2024.

Pursuant to the revised Enforcement Decree, investors with a net short position balance of 0.01 percent (excluding those with less than KRW100 million) or KRW1 billion or more of total issuance volume will be newly required to disclose their net short position balances from December 1, 2024. Previously, only those with a net short position balance of 0.5 percent or more were subject to the disclosure requirement. Therefore, investors that will newly become subject to the disclosure requirement—those with a net short position balance of 0.01 percent or KRW1 billion or more but less than 0.5 percent—will begin to disclose their net short position balances from December 4.

The government and relevant institutions have been working on comprehensive short sale reform measures in order to address the problem of illegal and unfair trading practices. Some of the reform agendas requiring no revision to legislation have already been put into place. On September 27, the supervisory regulation on financial investment businesses was revised to bring down the cash collateral ratio of retail investors when borrowing stocks to 105 percent, which is the same level in place for institutional investors. The reduced cash collateral ratio for retail investors is expected to become effective from March 31, 2025. For market makers and liquidity providers, their stock borrowing period has been already limited to maximum 12 months with 90-day extensions each time through system upgrades made at the securities lending institutions (Korea Securities Depository and Korea Securities Finance Corporation) from November 1.

Additional announcements for regulatory revisions will be made within this month regarding other reform areas, such as the establishment of an electronic short sale processing and monitoring system, internal control standards, securities companies’ verification duty, and the limit on institutional investors’ stock borrowing period, as a follow-up to the passage of the revised FSCMA on September 26.

The government and relevant institutions will spare no effort in pursuing follow-up measures and establishing an electronic short sale processing and monitoring system to make sure that short sale transactions can resume as planned from the end of March next year.

• Please refer to the attached PDF for details.

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