South Korea is setting up a system to catch illegal stock short selling.

South Korea’s financial market regulator announced on Thursday that it is testing a new system aimed at spotting illegal short sales of stocks before ending the current ban on these trades. The country’s laws prohibit “naked” short-selling, where investors sell stocks they haven’t borrowed first.

The new system will electronically track all short sale transactions by big investors and check them through a central system at the stock exchange. The head of the Financial Supervisory Service (FSS), Lee Bok-hyun, explained that illegal short selling has been a key reason for the “Korea discount,” which makes Korean companies appear less valuable compared to global firms due to issues like low dividends and unclear management.

Lee hopes that this thorough checking system will eliminate illegal short selling. He shared these details ahead of a briefing about the new system to experts and individual investors. The regulator noted that the final checks on the new system are almost done but did not specify when the short selling ban would end. The ban has been in place since last November when illegal trading by some foreign banks was discovered.

Authorities have decided to keep the ban until they are sure the new system works well. Lee mentioned that it’s unclear when the ban will be lifted as they need to see how well the new system functions. Most big and foreign investors agree that using the electronic system to regain trust from local individual investors is important, even if it costs them.

To make trading fair, South Korea also plans to ease short-selling rules for individual investors and set new borrowing limits for big and foreign investors once the ban is removed