As Market Volatility Surges, FSS Launches Probe into Illegal Short Selling

As stock market volatility has recently increased, financial authorities have launched an investigation into suspected illegal short-selling transactions.

According to financial authorities on November 1, the Financial Supervisory Service (FSS) will investigate around five KOSPI and KOSDAQ stocks flagged for suspected naked short selling by the short-selling central monitoring system (NSDS) between September and October. The suspected transactions were detected as the Korea Exchange (KRX) continuously monitored institutional investors' trading records through the NSDS.

The FSS plans to investigate domestic and foreign institutional investors suspected of wrongdoing and determine whether they engaged in naked short selling by reviewing order and execution records, shareholdings, and borrowing records.

Short selling is an investment strategy in which investors borrow shares and sell them when they expect the share price to fall, then buy them back at a lower price and return them if the price actually declines. While it supplies liquidity to the market and helps prevent share prices from falling, naked short selling—selling shares without first borrowing them—can be exploited for unfair trading practices such as market manipulation. Naked short selling is prohibited in South Korea.

This content was produced with the assistance of AI translation services.