These measures will be undertaken according to the "Plan for Improving Foreign Stock Trading Regulations" (September 6, 2004).
Effective Date of their measures is March 28, 2005.
Background
Under the current system, only off-hours block trading is allowed and the prices are limited within a fixed range based on closing prices. These restrictions make it difficult for traders to assess the trading counterparts and negotiate prices. In addition, most of block trading orders are processed during the regular trading hours, adding to the stock price fluctuations.
The current short-selling regulations are not exactly up to those of advanced markets, and the exceptional cases where short selling is allowed are strictly limited, thereby presenting obstacles for traders.
Contents of the Changes
1. Block Trading System
The block trading system will be revised to curb steep fluctuations in stock prices arising from block trading and to facilitate price negotiations between trading parties.
Block Trading Will Be Allowed During Regular Trading Hours
Block trading and basket trading on K-Blox, a system designed and used exclusively for block trading, will be allowed during regular trading hours.
Prices will be allowed to fluctuate between the lowest and the highest price of the day, but the rest of the trading rules will be the same as those for the off-hours block trading and basket trading.
Price Band Will Be Expanded for Off-Hours Block Trading and Basket Trading
(Current) Closing Price ±7%or VWAP (Volume-Weighted Average Price)
(New) within the price fluctuation limit
Volume Restrictions on Block Trading Will Be Eased
(Current) 10,000 shares or more / 200 million won or more
(New) 500 times the trading unit (one or ten shares) or more / 100 million won or more
Publishing Time for Block Trading Data Will Be Changed
(Current) Real Time
(New) After the off-hours market is closed.
Other market data is believed to help raise market efficiency and will therefore be disclosed within the current scope.
2. Regulations on Short Selling To Be Improved Up To International Standards
Regulations on short selling will be improved up to global standards to increase the regulation effects and efficiency, and minimize inconvenience for traders.
Price Restrictions on Short Selling Will be Tightened
(Current) Traders are not allowed to offer prices below the immediately preceding price.
(New) Traders can offer prices at the immediately preceding price or lower. If stock prices are rising, traders can place orders at the immediately preceding price.
Short Selling Scope Will Be Expanded
Short selling scope will be expanded to allow traders to employ diverse trading strategies in the event that there is no default risk. Short selling scope will be increased to include the cases below.
- Selling stocks acquired by request for conversion of DRs into the underlying shares.
- Selling lent stocks scheduled to be returned by the date of settlement.
- A member sells stocks in advance on the exchange within the volume that the member agreed to trade with a customer at the VWAP in the off-hours session.
(Current) Short selling is defined as “selling borrowed stocks”
(New) “selling stocks not owned by the trader or borrowed stocks”
Please see the attached file for more information.
