[Photo by The Financial Services Commission]
Illicit short selling can cost a penalty up to the value of sale orders plus more than a year behind bars in South Korea from April 6, according to the executive act to the amended capital market and investment law.
The Financial Services Commission (FSC) said Tuesday that the revision bill to the Financial Investment Services and Capital Market Act passed the state council meeting, and they will go into effect starting April 6. The tougher penalty goes into action before short sale is brought back to the Seoul market starting with large-cap stocks from May after a ban since March.
Investors who sell short illegally will be facing a fine of up to the amount of short orders as well as minimum one-year jail time. Those who participate in equity financing of companies whose stocks have shorted will be facing a penalty of up to 1.5 times of the ill-gotten gains.
The fine will be measured based on the order amount and level of repetition of the offense. Detailed ratio and criteria for penalty aggravation or mitigation are subject to the FSC approval on Wednesday.
The revised law also requires short sellers to keep their securities lending agreements including the date of a contract, other party and the amount of orders for five years, and submit them to the financial authorities promptly when requested. Violators will be imposed with 60 million won ($52,994) in fine for incorporated enterprises and 30 million won for unincorporated ones.
Investors will be banned from buying new shares offered by a company whose stocks they have shorted once the company has disclosed its plan for new stock issuance.
The FSC said the temporary ban on stock short selling will be lifted on May 2, but the revision bills will take effect on April 6. If a company discloses an equity financing plan after April 6, investors who sell short its stocks after May 3 cannot participate in the offering, according to the FSC.
By Moon Ji-woong and Choi Mira
[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]