(Bloomberg) -- South Korea is developing a platform to monitor short-selling that can help identify illegal transactions, a crucial step for the government to reintroduce the trading strategy. 

The platform will be managed by Korea Exchange and can identify trades that short stocks without first borrowing them, according to a joint statement from the Financial Supervisory Service and the bourse. The statement didn’t offer details on the launch date. 

The government has banned short-selling since November with the goal of rooting out naked short sales, which is illegal in the country. While the ban was initially stated to remain until the end of June, President Yoon Suk Yeol has recently said restrictions will remain in place until an electronic monitoring system is in place.  

The centralized platform is unlikely to be ready by the end of June, according to people familiar with the matter, who declined to be identified as they’re not authorized to speak publicly. It may take about a year to develop it, one of the people said. 

Short-selling is a contentious political issue in South Korea, with the country’s powerful retail investors often blaming the practice — which remains legal in many markets — for driving stocks lower. The financial watchdog has reportedly imposed fines on BNP Paribas SA and HSBC Holdings Plc for naked short sales, while prosecutors have indicted HSBC’s Hong Kong unit and three of its traders.  

The benchmark Kospi Index fell 1.8% on Thursday, taking the month’s loss to more than 4%. 

Korea Exchange will establish the so-called “Naked Short Selling Detecting System” on its server, which will collect data on stock balances from 21 foreign institutions and 78 domestic firms, the statement said. The firms in total account for 92% of short-selling in the country. If there is a mismatch between a sell order and the outstanding balance, the transaction will be automatically reported to authorities.  

Implementation of the system needs parliamentary approval as it requires a change in the capital market law to collect data from institutional investors. Yonhap Infomax reported earlier without attribution that it may take roughly one year to establish the centralized platform. 

“Although a centralized stock-lending system holds potential benefits, it’s notable that very few, if any, countries have effectively implemented such a system on a global scale,” said Sanghyun Park, founder of Clepsydra Capital, who publishes on Smartkarma. “Consequently, the prospect of Korea pioneering such an endeavor carries heightened risks.”

“Despite this, it seems that Korean regulatory authorities are approaching this by treating it as a prerequisite for the abolition of short-selling restrictions, suggesting that it would be correct to say that the lifting of short-selling restrictions is contingent upon this premise,” Park added.

(Adds Kospi moves below tout box)

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