Financial authorities to develop monitoring platform for illegal short selling by March next year

The financial regulator said Monday it plans to develop a real-time monitoring system for naked stock short selling by March next year.

The plan comes amid an ongoing ban on stock short selling, which was originally set to end at the end of this month.

“A considerable amount of time is required to develop a centralized naked short selling monitoring system, as well as an effective algorithm to detect illegal stock short selling,” the Financial Supervisory Service (FSS) said in a press release as the financial watchdog and the Korea Exchange (KRX) held their third meeting with investors to discuss ways to improve the country’s stock short selling system.

“(The government) will push to reduce the amount of time needed to develop a naked short selling detection system (NSDS) within 10 months by March next year,” it added.

The FSS has repeatedly declined to comment on when the temporary ban on stock short selling will be lifted, but many experts believe it will likely be after March when the envisioned real-time detection system is developed.

The presidential office has also said the ban will remain in place until a “credible” system is developed and ready.

Seoul placed the temporary ban on stock short selling in November after the FSS exposed massive illegal short selling activities at two global investment banks (IBs) in South Korea.

The country has since launched an inspection of 14 major IBs in the country and detected suspected cases of naked stock short selling at nine of them as of early last month.

FSS chief Lee Bok-hyun stressed that the move to improve the stock short selling system is part of efforts to upgrade the country’s capital market.

“As you may know, the government is considering various policy efforts to enhance the value of the country’s capital market, and the move to improve the short selling system, too, is aimed at upgrading our capital market by boosting investors’ trust in the system,” he told the meeting, held at the KRX headquarters in Seoul.

Lee added that the government will soon announce its final plan to improve the stock short selling system.

The FSS has said the plan will include real-time monitoring of stock short selling, as well as the automatic rejection of short selling orders when the trader lacks sufficient balance.