South Korea Reinstates Short-Selling Ban: Starting from Monday, South Korea is reinstating a ban on short-selling shares, and it’s set to last until at least June. The purpose behind this move, as stated by financial authorities, is to establish a “level playing field” for both retail and institutional investors. The ban had been lifted in May 2021 for trades involving the shares of companies with substantial market capitalisation included in the KOSPI200 and KOSDAQ150 share price indices, while it remained in place for most other stocks.
In the words of Financial Services Commission (FSC) Chairman Kim Joo-hyun, “The measure is aimed at fundamentally easing ‘the tilted playing field’ between institutional and retail investors.” He continued, “Amid continued uncertainty in financial markets, major foreign investment banks have been engaged as a matter of practice in unfair trades… and we determined that it would be impossible to maintain fair trading discipline.” Kim also mentioned that the Financial Services Commission plans to review market activity in June to assess whether there has been significant improvement to warrant lifting the ban.
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Furthermore, the regulator recently announced its intention to establish a team of investigators to look into short-selling by foreign investment banks for potential illegal activity, including so-called naked short-selling. It’s worth noting that naked short-selling, where an investor short-sells shares without first borrowing them or ensuring they can be borrowed, is prohibited in South Korea. In October, the Financial Supervisory Service indicated its intention to likely fine two Hong Kong-based investment banks for engaging in naked short-selling transactions worth substantial amounts.
Earlier in the year, the regulator imposed fines on five foreign firms, including Credit Suisse, for their involvement in naked short-selling. This issue, among others, has been cited by officials and market observers as one of the factors needing resolution for MSCI to consider upgrading South Korea to a developed-market status.
Our Reader’s Queries
Is short-selling banned in South Korea until 2024?
During an impromptu Sunday briefing, it was revealed that short-selling would be prohibited in Seoul’s stock markets, with the exception of market makers and liquidity providers. This ban will be in effect from the following day until the end of June 2024, which is nearly eight months away.
Why South Korea is at war with short sellers again?
South Korea has once again banned the practice of selling borrowed shares, putting short sellers in hot water. The move is aimed at preventing investment banks from engaging in illicit trading practices that could damage public trust in the markets. This is not the first time South Korea has taken such action, as they are determined to maintain the integrity of their financial system.
Did South Korean stocks jump after regulator bans short-selling?
South Korean shares are currently a wise investment choice. The Kospi Composite Index surged by 5.7% on Monday, following the regulator’s decision to prohibit short selling until June 2024. This impressive increase marks the index’s biggest one-day gain since March 2020 and continues the upward trend that began last week.
How many times has South Korea banned short-selling?
The recent ban on short-selling has raised suspicions of political motives, as similar bans were implemented during times of economic turmoil, such as the 2008 financial crisis. A Seoul-based analyst, who preferred to remain anonymous, expressed this sentiment. This marks the fourth instance of such a ban.