In a bold move to protect its domestic market from external uncertainties, South Korea’s financial regulator has announced a temporary ban on stock short selling until the second half of 2024.
The decision, effective from Monday, comes as a response to growing concerns over illegal short selling by global investment banks (IBs).
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) jointly made the announcement.
The Ban’s Duration
The ban, set to run until the end of June 2024, covers all stocks listed on the local market. This decision aims to safeguard the stability and integrity of South Korea’s stock market during challenging times.
Global Economic Uncertainties
The financial regulators have pointed to “growing external uncertainties” as a significant factor behind their decision. These uncertainties include the global economic slowdown and ongoing conflicts, such as the war between Israel and Hamas.
These global events have raised concerns about the fair pricing of stocks in South Korea’s local market.
Illegal Short Selling Concerns
One of the primary motivations for this ban is the persistent problem of illegal short selling by foreign investors and institutional players.
Despite ongoing efforts to improve the system, the authorities have continued to uncover instances of illegal naked short selling.
Cracking Down on Offenders
The Financial Supervisory Service (FSS) recently unveiled plans to establish a special task force that will inspect global investment banks for illegal short selling activities.
This move follows the revelation of two Hong Kong-based investment banks suspected of short selling stocks worth 56 billion won (US$42.7 million) without the ability to borrow the shares they sold.
Reforming the System
The South Korean government, in collaboration with the FSC, is determined to reform the system to prevent illegal naked short selling in real-time.
Their aim is to create a level playing field for all market participants and ensure fair pricing of stocks. These reforms are expected to be in place before the end of June 2024.
South Korea’s temporary ban on stock short selling is a decisive response to global uncertainties and concerns about illegal short selling.
This move aims to protect the integrity of the local stock market and prevent the unfair advantage some investors might have due to illegal practices.
The government is committed to implementing reforms that will promote a fair and transparent financial market, benefiting both investors and the nation’s economy.