Korea's FSS Convenes Emergency Meeting to Curb Naked Short Selling

South Korea’s financial regulator, the Financial Supervisory Service (FSS), convened an emergency meeting with compliance officers from 21 domestic and foreign securities firms on the 13th to tighten market surveillance of short selling amid heightened volatility tied to Middle East tensions.

Lee Seung-woo, the FSS deputy vice governor, told participants that as market swings widen, short selling must not erode market confidence and that rigorous compliance oversight is essential. The aim is to curb practices that could undermine trust in the market.

To prevent naked short selling, the FSS requested firms strengthen their sellable balance calculation processes and implement blocks on orders that exceed a firm’s current holdings, addressing risk at the order-entry stage. The regulator noted that recent naked short occurrences were often due to human or administrative errors.

The agency also called for beefed-up information technology and systems management. Given the high volume of data in short selling activities, systemic failures could trigger widespread rule violations, the FSS warned, and improvement of IT resilience was emphasized.

In addition, the FSS asked firms to intensify monitoring for activity that uses short selling to unduly influence prices or disrupt market order, and to report any abnormal signals to the regulator to safeguard market integrity and cooperation in enforcement.

The meeting occurred in Seoul’s Yeouido district, home to Korea’s financial regulator and key market infrastructure, including the Korea Exchange, where oversight of trading practices and short selling sits alongside broader market regulation.

For U.S. readers, the developments matter because Korea is a major technology-producing economy with global supply chains and significant investment connections to U.S. markets. Tighter controls on naked short selling and enhanced market surveillance can affect liquidity, cross-border trading, and investor sentiment in sectors tied to Korean firms such as semiconductors and electronics, with potential spillovers to global markets and American funds with exposure to Korea.