Starting from Monday, South Korea will re-impose a ban on short-selling shares until at least June in order to create a “level playing field” for both retail and institutional investors, according to financial authorities. Although the ban was lifted in May 2021 for trades involving shares of companies with large market capitalization included in the KOSPI200 and KOSDAQ150 share price indices, it has remained in place for most other stocks. Short-selling involves selling borrowed shares and buying them back at a lower price to profit from the difference. The Financial Services Commission (FSC) Chairman, Kim Joo-hyun, stated that the measure aims to address unfair trading practices between institutional and retail investors, especially considering the continued uncertainty in financial markets. The FSC will review market activity in June to determine if there has been significant improvement and whether the ban can be lifted.
In addition to the ban on short-selling, the regulator announced the establishment of a team of investigators to probe foreign investment banks’ short-selling activities for illegal practices, including naked short-selling. Naked short-selling, which involves short-selling shares without first borrowing them or determining their availability for borrowing, is banned in South Korea. In October, the Financial Supervisory Service revealed that it would likely fine two Hong Kong-based investment banks for engaging in naked short-selling transactions worth 40 billion won ($29.58 million) and 16 billion won, respectively. Previously, the regulator had also fined five foreign firms, including Credit Suisse, for naked short-selling. The uncertainty surrounding short-selling regulations has been identified by officials and market observers as one of the factors that need to be resolved for MSCI, an influential index provider, to consider upgrading South Korea to developed-market status. This information was reported by Jack Kim.