Seoul readying ammunition to bolster stock market, may put lid on short sale

[Source: Financial Services Commission]

Seoul authorities are readying ammunitions to intervene in the stock market after the foreign exchange and bond markets on judgement that volatility could persist longer than expected, and may go as far as banning stock sale if speculative selloff kicks in.

Financial Services Commission (FSC) has embarked on administrative work to reactivate stock stabilization fund. It has already had emergency meetings with securities related offices.

“We have reentered agreements with institutional investors and are discussing how much funds are needed,” said an unnamed official from FSC on Wednesday.

Stock stabilization fund was last activated during the routs in the early outbreak of pandemic in March 2020. At the time the fund pooled in 10.7 trillion won ($7.5 bn) from financial and public institutions. The fund readying to go into work in April was not employed as the market started to recover.

The Kospi and Kosdaq have retreated to 2020 levels this week amid panicky exodus from emerging markets on down spiral in non-dollar currencies after the hint of greater rate increases in the U.S. along with other multiple negative factors around the world.

The Kospi on Wednesday returned to the lows of July 10, 2020. The plunge was mainly led by foreigners and institutions that net sold stocks in massive scale. The secondary Kosdaq closed 3.47 percent down at 673.87, the lowest since May 7, 2020. Shares recovered Thursday led by retailers upon the news. Kospi opened 1.5 percent higher and Kosdaq up 2.6 percent.

The stock stabilization fund currently has about 120 billion won in remaining funds. The investment management committee of the fund has not disbanded.

“Investment entities need to adjust and confirm contributions through board approval,” said an unnamed FSC official.

FSC Chairman Kim Joo-hyun upon taking office in July suggested stock stabilization fund may go into force when needed.

The FSC is also fidgeting with ban on short sale mostly led by foreign and institutional players.

Short sale had been banned during the pandemic period and has been reallowed for top 200 Kospi stocks and 150 Kosdaq stocks since May last year.

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