S. Korea set to ban short selling temporarily

SEOUL, Sept. 24 (Yonhap) -- South Korea's financial watchdog said Wednesday it
will impose a temporary ban on short selling of 45 stocks next month as "a
considerable number" of brokerage houses were found to have violated related
regulations.
Effective Oct. 13, the suspension will apply to 36 stocks traded on the nation's
main bourse, whose 20-session short selling turnovers accounted for 5 percent or
more of total transactions, the Financial Services Commission (FSC) said. The
threshold is 3 percent for nine stocks listed on the secondary bourse, it said.
The watchdog, however, did not disclose how many securities companies were
involved in the irregularities.
"After checking cases, the watchdog plans to pursue disciplinary actions against
the securities firms in question," Song Kyung-chul, deputy governor of the
Financial Supervisory Service (FSS), told reporters. "Supervision of short
selling will be strengthened to minimize any negative impact on the market."
Short selling refers to the practice in which investors sell shares by borrowing
them in anticipation of price falls. Short sellers can make profits by buying
back shares at a lower price and then returning them.
South Korea does not allow so-called "naked short selling," in which investors
unload shares which they do not own, but only permits investors to sell borrowed
stocks. Short selling has been blamed for amplifying financial market jitters by
sparking price falls.
According to the FSS, some investors made banned naked short sales, while more
foreign traders have also violated the regulations on short selling.
The regulatory FSC said it will require securities houses to check all investors
to determine their settlement capacity when engaging in short selling and raise
collateral ratio up to 140 percent for stock lending.
The move came two days after Jun Kwang-woo, chairman of the FSC, said that the
regulator would consider beefing up the rules on short selling if necessary.
Since late August, the FSS has been looking at whether a total of 52 local
brokerage houses and related agencies have broken related regulations.
Global regulators have put a temporary ban on short selling. The U.S. Securities
and Exchange Commission banned short selling for 10 days on Friday after Britain
imposed a four-month curb on short selling of financial stocks Thursday, making
moves to calm financial market turmoil.