South Korea now speaks on the impact of illegal short selling after the illicit practice accounted for 20% of daily transactions.
Financial watchdogs have vowed to continue rooting out the malpractice in the markets.
“The FSS found that the violation rate exceeded 20% in some cases, which suggests that illegal transactions have a big impact on a certain stock,” the financial regulator said in a statement late Tuesday.
“It’s necessary to consider the impact of illegal short sales on an individual stock as such trades hinder fair pricing and increase short-term volatility,” it said.
Bloomberg reports the South Korea’s financial watchdogs derived the 20% figure by dividing the amount of violated orders on a certain stock by its daily trading value.
The FSS did not identify the equities that saw illegal trades and declined to say how frequently the trades exceeded that ratio.
In November, South Korea imposed a ban on short selling through mid-2024, a decision that drew big celebration from retail investors in the country.
Professional investors on the other hand are skeptical, seeing the move as being politically motivated ahead of the election.
Financial authorities have defended the decision, describing illegal trades such as naked short selling — an act of selling shares without borrowing them first — as “rampant” and hurting fairness in the market, reports Bloomberg.
Furthermore, Bloomberg reported on Monday that investigators have turned up just 110 billion won worth ($83 million) of alleged naked short selling by four global investment banks.
In the U.S., naked short selling continues to be a big problem.
Citadel Securities is currently under heavy scrutiny for marking short sales as long sales over a period of five years.
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