The South Korean government warned of “heaviest possible penalization” for any illicit short selling activities as it has partially lifted its ban on the practice after a 14-month ban on Monday.

“The government will closely monitor the market situation through authorities like Financial Supervisory Service and Korea Exchange and take stern actions by imposing the toughest penalization allowed by the law,” said Doh Kyu-sang, vice chairman of the Financial Services Commission (FSC), at a video conference on Monday.

Stock short sale has partially resumed for large-cap stocks on the Kospi 200 and Kosdaq 150 indexes after a ban since March 16 last year. Doh said the authorities expect there will be no illicit activities on the market as they have strengthened supervision and punishment for illegal practices.

Short selling is a practice of selling borrowed securities in hopes of making a profit by buying them back later at a price lower than the selling price. Investors who sell short illegally will be facing a tougher punishment of a fine of up to three to five times of the ill-gotten gains or minimum one-year jail time.

The FSC separately announced a set of measures to support small- and mid-sized companies and small merchants at risk of credit rating downgrade due to the poor sales amid Covid-19.

Doh said the government will revise its corporate debt and commercial paper program to make it easier for companies with lower credit score to raise finance from the market. It will raise the ceiling for the primary collateralized bond obligation (P-CBO) program for firms rated BB or lower and make more companies eligible for its debt repayment support program, he said.

In order to relieve the anxiety of small companies suffering from a temporary business slowdown due to the Covid-19 restrictions, the government will take a measure to allow financial institutions like banks to take into account companies’ resilience from Covid-19 toll when they give credit scores, and minimize disadvantages from cut in credit rating for firms without bad loans, Doh said.

By Pulse

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