South Korea Tightens Short-Selling Regulations, Introduces Severe Penalties for Violations
South Korea’s National Assembly has passed a significant amendment to the Capital Markets Act, aiming to strengthen regulations on illegal short-selling practices. The new law, set to take effect on March 31, 2025, introduces harsher penalties and enhanced administrative sanctions for offenders.
Under the revised legislation, announced in late September by the Financial Services Commission (FSC), individuals who gain over 5 billion won (approximately $3.79 million) through illegal short-selling could face life imprisonment. The amendment also mandates that institutional investors implement electronic short-selling systems and internal control standards, with 101 companies representing 92% of domestic short-selling transactions required to comply.
The new regulations aim to level the playing field between individual and institutional investors by standardizing short-selling conditions. This includes limiting the repayment period for loan transactions used in short selling, with non-compliance resulting in fines of up to 100 million won. The loan term can be extended in 90-day intervals for a maximum of 12 months.
Administrative sanctions have been diversified to prevent repeat offenses. Authorities can now restrict trading of financial investment products for up to five years and limit executive appointments in listed companies. Fines for unfair trading and illegal short selling have been increased to 4-6 times the illicit profit, up from the previous 3-5 times.
To combat profit concealment, accounts suspected of being used for unfair trading or illegal short selling can be frozen for up to six months, with a possible six-month extension.
While most provisions will be effective from March 31, 2025, restrictions on financial product trading and executive appointments will be implemented six months after enactment, following public consultation.
The FSC plans to finalize additional regulatory changes by October, including lowering the short-selling disclosure threshold and reducing the collateral ratio for individual short sellers. These measures, along with the new electronic short-selling system, are expected to enhance investor confidence and strengthen the competitiveness of South Korea’s stock market.
Information for this story was found via the FSC, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
