The Korea Exchange noted on the 5th that it has completed the development of a short selling central inspection system (NSDS) that enables ongoing inspection of short selling transaction history from institutional investors to prevent illegal short selling.
The exchange plans to begin joint testing with major institutional investors that have established a balance management system starting from the 6th.
Earlier, the exchange commenced the development of NSDS in July of last year after the government announced measures to improve the short selling system on June 13.
The short selling computer system is divided into two main parts. First, the institutional investors' own balance management system is an internal computer system that manages sellable balances in real time to proactively prevent illegal short selling.
In the case of NSDS, when institutional investors report their balances and changes to the exchange, it compares the transaction history and balances of the exchange and NextTrade (ATS) to detect illegal short selling. This process takes three trading days from the date of transaction execution. The NSDS provides a website for institutional investors to support automatic detection of illegal short selling and to submit confirmation and explanation materials.
This joint testing will involve about 30 major domestic and foreign institutional investors, accounting for over 90% of short selling transactions. The exchange plans to focus on checking interface connections and data integrity with NSDS until February.
After completing the testing, a simulated market will be operated for the institutional investors from March 6 to March 26 of this year. An exchange official said, “We will take all necessary measures to stabilize the system before the mandatory enforcement of the short selling computer system on March 31.”
So far, the exchange has held four briefing sessions for domestic and foreign institutional investors to share the development status of NSDS while promoting its development. The exchange plans to distribute a detailed manual titled ‘NSDS Guidebook’ that can be utilized for NSDS balance reporting this month.
An exchange official said, “Through the construction of the short selling computer system, we expect to prevent naked short selling transactions and enhance market confidence in short selling.”