4/22/2015

Short Selling at the Korea Stock Exchange Permitted - Don't Forget the Disclosure Requirements

A ban on shorting stocks in Korea was lifted late in 2013 by the Korea Financial Services Commission (FSC).

Short selling is defined by the United States Security and Exchange Commission as " the sale of a stock that an investor does not own or a sale which is consummated by the delivery of a stock borrowed by, or for the account of, the investor. Short sales are, normally, settled by the delivery of a security borrowed by or on behalf of the investor. The investor later closes out the position by returning the borrowed security to the stock lender, typically by purchasing securities on the open market."

Thus, simply, shorting a stock is an investment that the value of a stock will decrease over a specific period of time.  If the value decreases, the investor gains, typically, the amount of the decrease minus a commission. 

Because of, inter alia, the perceived potential for abuse by investors, most governments carefully monitor shorting shares via onerous disclosure requirements.  

The FSC imposes disclosure requirements on domestic and foreign companies and individuals with a controlling interest in short sale positions of more than .5% of a Korean-listed companies outstanding shares. 

Additionally, any domestic or foreign companies or individuals with a controlling interest in shorts of more the .01% or KRW 1 billion is required to report the transaction to the exchange and the Financial Services Commission.

Shorts are reported, daily, by the FSC and reported by the Korean Stock Exchange.

For more information on the Korean Stock Exchange please take a look at the website of the Korean Exchange and Morningstars' Korea Stock Market News & Reports.

I follow the Morningstar Page daily for useful information on the Korean Stock Exchange.  Also, Forbes and Wall Street Journal have very good articles on the Korean Stock Exchange.

Happy investing.
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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw.