The South Korea Financial Services Commission announced that the cabinet has approved revisions to the Enforcement Decree of the Financial Investment Services and Capital Markets Act, upgrading the framework for short sale practices ahead of the planned resumption of short selling on March 31, 2025. The package introduces a cap on institutional investors’ stock repayment periods and new obligations aimed at preventing naked short selling. Institutional investors’ stock repayment periods, set by lender-borrower agreement, must not exceed 12 months in total, with each renewal limited to 90 days, and certain disruptions (including delisting, trading suspension on the final day, or restricted account-to-account transfers) shift the final repayment day to three business days after the cause is lifted. For naked short sale prevention, corporate entities and securities companies handling short sale orders face new compliance duties, including electronic net short position balance management systems, internal control standards (including keeping short sale records for at least five years), and data submissions to the Korea Exchange within two business days after each business day; the corporate-entity obligations apply to firms with net short position balances at or above 0.01 percent of total issuance volume (excluding balances below KRW 100 million) or KRW 1 billion or more, as well as market makers and liquidity providers. Securities companies must verify corporate entities’ implementation of these measures before placing short sale orders and at least every 12 months thereafter, and report verification results to the Financial Supervisory Service within one month; certain institutional investors that only place short sale orders after recording borrowed stock in their systems are exempt from the duty to establish and operate an electronic short sale processing system. Other changes extend Korea Exchange display rules to short sale orders routed to alternative trading systems, and restrict short sellers from acquiring convertible bonds or bonds with warrants issued by the same company from one day after disclosure of an issuance plan until disclosure of the issue price, subject to an exemption where purchased-share volume exceeds short sale orders during the period. The revised Enforcement Decree is scheduled to take effect on March 31, 2025 alongside expected amendments to subordinate regulations for financial investment businesses and the Korea Exchange. The Korea Exchange’s Naked Short Selling Detecting System has been established and is under operational testing, with related upgrades also implemented at the Korea Securities Depository and the Korea Securities Finance Corporation to support the new repayment-period limit.

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