1. Reason for Amendment

□ Repeated detection of large-scale naked short selling* has raised concerns about the potential hindrance to fair price formation in the market. To address this issue, naked short selling has been prohibited for all stocks since November 5, 2023, and fundamental institutional improvements are being pursued to eliminate concerns about the disruption of fair price formation due to illegal short selling.

*Even in cases where there is a self-managed balance system, repeated omissions of sell orders have been observed, and internal controls are not functioning properly, leading to repeated naked short selling.

□ In accordance with the short-selling reform measures announced in June 2024, the revised Capital Markets Act now includes obligations for short-selling entities to establish "internal control standards for short selling" and build an electronic system, as well as a new responsibility for entrusted securities firms to verify measures to prevent naked short selling (including the obligation to report verification results to the regulatory authority). Penalties and fines have also been established for violations.

2. Main Points

□ Regarding the entrusted securities firm's duty to verify measures to prevent naked short selling, Article 4-6, Paragraph 5 of the Enforcement Rules stipulates the obligation to retain records of the inspection details carried out by the entrusted securities firm.

- Violations of the verification obligation by the entrusted securities firm will be subject to sanctions and fines, and the purpose is to provide a basis for determining future violations.

※ Structure of Article 4-6 of the Enforcement Rules (Verification by Investment Brokerage Firms): (Paragraph 1) Inspection items, (Paragraphs 2 and 3) Inspection methods, (Paragraph 4) Report on verification results, (Paragraph 5) Retention of inspection details, etc.