Seoul: South Korea’s financial watchdog says illegal short selling accounted for more than 20% of daily transactions in a number of stocks, and vowed to continue working on rooting out such practices.

       In a statement following a Bloomberg report which showed naked short sales accounted for 0.001% of the total value of South Korean shares traded over the last two years, the Financial Supervisory Service (FSS) said it’s looking at individual stocks rather than the total market to assess the seriousness of the issue.

       “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.

       It 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. It declined to say how frequently the trades exceeded that ratio.

       The government in November imposed a ban on any kind of stock short selling through mid-2024, a decision that drew cheers from retail traders but scepticism from professional investors, who saw the move as 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. — Bloomberg

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