South Korea Bans Short Selling In Stocks Citing Economic Uncertainties

Seoul [South Korea] : Financial authorities in South Korea decided to ban all stock short selling in domestic markets with immediate effect and until the end of June 2024, the country’s Financial Services Commission (FSC) said in a release.

A short-seller in the securities market books gains from the subsequent reduction in the prices of shares.

Continuation of high-interest rates and stagnant growth in the global economy, coupled with geopolitical risks such as the conflict in West Asia, FSC said in the release that there are growing uncertainties for the Korean economy.

In particular, during the second half of this year, it said stock market volatility in domestic stock markets has risen to much higher levels compared to other major markets overseas, causing anxiety in the market.

‘Despite a series of measures introduced in the past, recently, the authorities have discovered a number of illegal naked short selling practices conducted by foreign and institutional investors, raising concerns about the fair pricing function of domestic stock markets,’ FSC said in the release issued on Sunday.

Recently, a large-scale naked short-selling case involving global investment banks was detected, and an investigation is currently taking place with the discovery of additional unlawful activities.

‘As such, the FSC finds that the situation with illegal short selling is very dire as it can erode the fair pricing function of the market and degrade confidence in the market.’

‘Therefore, considering the need to preemptively respond to the rising market uncertainties and address concerns about the potential weakening of the market’s fair pricing function, and with the practice of illegal naked short selling taking place in a more routine way, the FSC decided to ban short selling on all domestic stock items until the end of June next year.’

Meanwhile, the government will work on proactive measures to improve the system in a way that will help to root out illegal short-selling activities when short-selling resumes. The authorities will look into various ways to prevent naked short-selling and, if needed, seek legislation through close cooperation with the National Assembly.

At a media briefing held on Sunday, FSC Chairman Kim Joo-hyun said that the top priority of the government’s capital market policy is to create a fair and efficient market to protect investors and ensure confidence in the market. In this regard, Chairman Kim said that the government will do all it can to bring improvements to the country’s short-selling system so that it can develop into one in which every investor can have confidence.