08 March 2017
Seoul
Reporter: Drew Nicol

Short selling under threat in South Korea


Short selling is being used as a political football in Asia, with participants facing burdensome regulatory requirements across the region, particularly in South Korea, conference attendees heard in Seoul.

Panellists at the Pan Asian Securities Lending Association/Risk Management Association event in Seoul voiced concern that the recent hardening of short selling rules in South Korea would negatively affect their business.

It was also noted that the source of these amendments was actually South Korean lawmakers and not the regulator itself, which was only reacting to political forces outside of its mandate.

“If South Korea’s Financial Services Commission (FSC) isn’t the one making the decision on these rules then sometimes cooler heads might not prevail,” one panellist commented.

Among other changes, the Korean Exchange will be handed new powers to withdraw "overheated" stocks that receive “extraordinary increases in short selling and sharp falls in prices” during a single day for a 24-hour cooling-off period, as outlined in a statement by South Korea’s FSC in November 2016.

Panellists also highlighted newly implemented penalties for failing to comply with public disclosure and reporting requirements as further evidence of the political motives behind the rulemaking.

The political nature of the rule changes have caused industry participants to question the thought process behind some of the terms, such as a 60-day limit on term lending. The limit was handed down without explanation and has since been described as an arbitrary limit with no clarity on whether strategic lending and borrowing is allowed to work around it in order to maintain a short position.

"The short selling rules aren't a big problem but the concern is if this rule is just the start of a wider initiative," a South Korea-based panellist commented.

It was noted in a later panel discussion that South Korea has been a lucrative market for securities lending for the past two years, but these new requirements may dampen revenue in the future.

Short sellers are also under the spotlight elsewhere in Asia. In Hong Kong, the Securities and Futures Commission has instigated plans to bring in reporting requirements for short positions as of 15 March.

The Hong Kong Exchange also tightened its criteria for securities eligible for short selling in mid-2016 to bring them in line with the state’s equity market.

Taiwan’s stock exchange is now monitoring short selling volumes on its platform more closely for indicators of when securities become ‘attention stocks’, which are then liable for pricing limits, as of June 2016.

More news
The latest news from Securities Lending Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
US Volcker Rule not fit for purpose, says SIFMA
22 September 2017 | New York | Reporter: Drew Nicol
The US Volcker Rule is too broad, excessively complex, and uniquely prescriptive, according to the Securities Industry and Financial Markets Association
Pension fund mandate for BNP Paribas
22 September 2017 | London | Reporter: Drew Nicol
BNP Paribas has been appointed to provide global custody for £3 billion in pension fund assets for the West Sussex Pension Fund
Pirum joins South African securities lending association
21 September 2017 | Johannesburg | Reporter: Drew Nicol
Pirum Systems has joined the South African Securities Lending Association
AcadiaSoft expands user base for IM compliance
21 September 2017 | Massachusetts | Reporter: Drew Nicol
The second phase of the IM rules went live on 1 September under the regulatory framework of BCBS and IOSCO
FCA takes pragmatic approach to MiFID II deadline
20 September 2017 | London | Reporter: Drew Nicol
The UK’s financial conduct authority has indicated it will accept a soft roll out of the second Markets in Financial Instruments Directive in January
EquiLend and Trax partner for SFTR solution
20 September 2017 | London | Reporter: Drew Nicol
Trax and EquiLend are joining forces to tackle SFTR reporting requirement with a a full front-to-back solution for mutual clients
Ten-year T2S saga comes to an end
19 Septemeber 2017 | Brussels | Reporter: Stephanie Palmer
The Target2-Securities pan-European harmonised settlement platform is finally fully operational, as the Spanish and Baltic markets completed their migration yesterday