South Korea’s financial regulator on Thursday unveiled a set of tougher measures on short-selling and overall disclosure system, more than a month after retail investors of Hanmi Pharmaceutical Co. suffered big losses due to massive short-selling by institutional investors before the company disclosed on September 30 that its contract with Boehringer Ingelheim broke down. The measures are aimed at preventing market volatility and enhancing monitoring on possible illegal transactions.

According to the Financial Services Commission, stocks with sudden and abnormal increase of short-sale transactions will be classified as so-called “overheated stocks” and will be banned from further short-selling on the following day.

An investor that short-sold equities of a company planning new stock issue before the shares were priced will lose eligibility to buy the new offering to prevent any profit-gaining from speculative short sales transactions. Similar trade under borrowed name also would be penalized.

Buyers of new issues would be scrutinized so that anyone later found to have violated the rules would face 500 million won ($435,000) in fine. Additional penalty will be levied if profit gain from illicit short sale multiple 1.5 times exceeds 500 million won.

The financial regulator will also disclose the stocks warning of overheating in short-sale transaction. Korea Exchange will come up with an automated system to alert a certain stock of overheated demand for short-selling. The stock would be warned to investors and fall under scrutiny by regulators on the following day.

The FSC would shorten the disclosure report on short-sale balance to two days from current three. It would become mandatory for listed to companies to disclose deals on technology transfer and partnership contracts, which previously had not been compulsory. Any corrections to earlier disclosure must be issued on the same day not the following day.

The penalty on disclosure violations will also be tripled. The maximum penalty for Kospi members would go up to 1 billion won from 200 million won and that for Kosdaq members to 500 million won from 100 million won.

By Bae Mi-jung

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