Intentional violation of rules on short-selling in Korea could face fines of up to 100 million won ($84,253) under the revisions to the capital market act proposed by the financial authority.

Under the country’s capital market act, regulatory violation of disclosures and unfair trading activities are subject to investigation by the Securities & Futures Commission before follow-up measures are taken, but there had not been a separate standard for imposing fines.

According to revised outline by the Financial Services Commission (FSC) announced on Thursday, stricter penalty ratio will be applied to illegal short selling activities. Until now, illegal short sellers were fined with 60 million won ($50,535) multiplied by imposition ratio based on the gravity of the consequence and intent. The financial authority has upped the imposition ratio to as high as 15 percentage points.

For example, previously, a short seller that borrows stocks and sells them to make profit on the difference of the stock price later on through illegal means was fined 36 million won after applying 60 percent imposition rate for intentional violation of the country’s short selling regulation. From now, however, a 75 percent imposition rate will be applied, resulting to 45 million won in penalty.

The financial authority has also toughened penalty rules and established legal ground to slap extra 50 percent penalty if a short seller is caught for unfair deals on top of violating short selling rules for the maximum penalty of 100 million won.

The FSC also proposed to revise penalty terms for disclosure violations for public security offerings of less than 1 billion won. Offering of less than 500 million won can be deducted by 30 percent. Voluntary correction and report can be exempted by maximum 50 percent.

Negligence in disclosure of smaller offerings will be given verbal warning instead of financial penalties.

The revised act could take effect in the first quarter next year.

By Lee Eun-joo

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]