SEOUL, April 25 (Reuters) - South Korea's financial market watchdog said on Thursday it was checking the effectiveness of a new monitoring system designed to detect illegal short-selling of domestic stocks before lifting a ban on such trades.
South Korea's Capital Markets Act bans 'naked' short-selling of stocks, in which an investor sells shares without first borrowing them or determining they can be borrowed.
The new system will electronically process all short-selling transactions by institutional investors and filter them through a central detection system set up at the stock exchange operator, the Financial Supervisory Service (FSS) said. "Illegal short selling has been one of the major factors behind the 'Korea discount', by undermining market credibility among domestic investors," its governor, Lee Bok-hyun, said in remarks prepared for delivery on Thursday.