Generally speaking, short-selling means the selling of securities that the seller does not own. In Korea, the FSCMA(§180) defines short-selling as follows:
- A sale of listed securities which the seller does not own (naked short-selling); or
- A sale of listed securities with an intention to settle with borrowed securities (covered short-selling).
The FSCMA also makes clear stipulations on the range of transactions where the short-selling regulation does not apply by prescribing that, if the seller is supposed to own a security in the future even though not at the moment, the sales of the security is not regarded as short sale because there is no possibility of settlement failure.
- According to the FSCMA, each of following items is not be deemed as short-selling:
- Selling purchased securities, within the purchased quantity, before the settlement date;
- Selling stocks in case where the stocks to be acquired by exercising the rights of convertible bonds, exchangeable bonds, bonds with warrants, capital increase, and stock dividends, are available for the settlement of the transaction by being listed by the settlement date; and
- Selling securities deposited with custodian institutions other than the KSD, selling stocks expected to acquire upon termination of a deposit contract for DRs and selling stocks expected to receive by redeeming ETFs as long as there is no possibility of settlement failure on the settlement date