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## South Korea’s Crackdown on Short Selling

(Bloomberg) — South Korea’s Financial Supervisory Service (FSS) has described illegal naked short selling as “rampant,” a claim they used to justify a surprise ban on all forms of short selling in the $1.8 trillion equity market in November.

The FSS’s probe into this issue has raised eyebrows, as it has only turned up 110 billion won worth of alleged naked short sales, which is equivalent to 0.001% of the total value of Korean shares traded in 2022 and 2023. The relatively small sum of problematic trades unearthed so far has led critics to question the justification for the complete ban on short selling in the stock market, viewing the move as politically motivated in the run-up to parliamentary elections in April.

The AI legalese decoder can help in this situation by reviewing and analyzing the legal documents related to short selling and identifying any potential irregularities or issues. The software can efficiently process large amounts of legal text and pinpoint specific areas of concern, helping regulatory authorities to make informed decisions based on accurate and comprehensive analysis.

Individual investors in Korea, who account for nearly 30% of Korea’s population, often blame short sellers for market downturns. However, the ban on short selling has been a subject of controversy, with some arguing that it is detrimental to the development of Korea’s capital markets.

The FSS’s focus on naked short selling does not include rule violations by investment banks’ end-clients such as hedge funds, further complicating the situation. With a 20-person special investigation team launched at the FSS and ongoing probes into short-selling activities, the regulatory authorities are determined to root out illegal trades and restore trust and fairness in the market.

President Yoon Suk Yeol has expressed his support for the ban, emphasizing the need to crack down on illegal short sellers who cause “great losses to retail investors.” However, the global investment banking industry and the South Korean authorities appear to have differing views on the prevalence of illegal short selling, leading to a complex and contentious situation.

The AI legalese decoder can help by providing comprehensive analysis of legal terminology and regulations related to short selling, allowing regulatory authorities to gain a holistic understanding of the issue and make informed decisions regarding future regulatory actions.

The figures revealed by the FSS could be just the tip of the iceberg, with Lee Hyo Seob, senior research fellow at the Korea Capital Market Institute, suggesting that there may have been a habitual ignorance of rules in the investment banking industry. It is essential for the regulatory authorities to thoroughly investigate and address any potential irregularities to ensure the integrity and stability of the stock market.

In the midst of this controversy, it is crucial to distinguish between mere operational and technical breaches and malicious activities related to short selling. ASIFMA’s Chao emphasizes the inevitability of mistakes in the trading industry and calls for a balanced approach to addressing such issues.

By utilizing the AI legalese decoder, regulatory authorities can gain valuable insights into legal and regulatory issues related to short selling and ensure that their actions are based on a comprehensive understanding of the complexities involved in the market.

(Updates with a table, response from the FSC in the seventh paragraph.)

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