A local startup on Wednesday unveiled the nation‘s first commercial securities lending system targeting institutional investors at home and abroad to help them prevent errors that can lead to naked short selling activities against the law, often unintended.

TruWeb, new securities lending platform developed by financial technology startup Tru Technologies, allows an institutional investor -- investment banks or brokerage firms -- to take advantage of automated process when making arrangements with a counterparty to borrow or lend securities before the short selling transaction takes place. Tru Technologies teamed up with London-based corporate information services firm IHS Markit to be equipped with its securities lending data.

Using the service, short sellers can prevent errors in manual processing -- often involving spreadsheets and online messengers -- which was seen as a culprit behind the recent naked short selling in Korean markets, including high-profile incidents by Goldman Sachs that led to a 7.5 billion won ($6.6 million) fine in 2018.

Naked short selling refers to a short selling transaction, which bets on the stock price fall, without actually borrowing the corresponding amount of stocks to short sell. Naked short selling has long been illegal in Korea. Aside from the ban, Korea has imposed a temporary short selling ban on all listed stocks until March 2021.

TruWeb platform enables built-in trade validation and the execution of multiple transactions for institutional investors, when they lend or borrow stocks to a counterparty. The service is currently available for short sellers in the East Asian stock market in Taiwan, Japan and Korea. Ha said TruWeb’s automation system will be available for listed stocks in Hong Kong, Europe and the United States before the end of 2020.

“Securities lending automation will prevent naked short selling caused by manual errors and track back each short selling transaction process,” Ha Jae-woo, chief executive of Tru Technologies, said in a press briefing. Ha has over 10 years of experience as a short sale trader in regions including Hong Kong.

“Through the partnership with Tru, we are able to provide our global securities lending data to more domestic institutions in Korea. This data lowers the information barrier allowing participants to better manage inventory, eliminate manual negotiation, and improve the operational process, enabling safe and prompt securities lending trades,” Karen King, APAC Head of Equity Business Development at IHS Markit in Hong Kong, said in a statement.

Tru Technologies gained a sandbox approval in December 2019 by the Financial Services Commission, exempting the startup from regulatory actions against its interinstitutional securities lending system for up to four years.

By Son Ji-hyoung (consnow@heraldcorp.com)