Seoul may employ pandemic emergency stock relief of $7 bn fund and short sale ban

[Source: Financial Services Commission]

South Korean financial authorities could activate the emergency stabilization measures for the stock markets last employed during the unprecedented pandemic outbreak in 2020 including the 10 trillion won ($7 billion) firearms to prop up the stock market and short sale ban if Korean stocks continue free fall from external uncertainties.

According to multiple sources from the financial sector on Tuesday, the Financial Services Commission (FSC) has been engaged in working-level consultation and administrative procedures with securities related offices to reactivate the private-public fund to stabilize financial market.

The FSC is expected to refuel the fund with a ceiling of 10 trillion won (6.97 billion) by mid-October.

About 760 billion won would come from securities related offices like Korea Exchange and Korea Securities Depository, and 120 billion won is left from last creation.

“We are preparing ammunitions as we need to inject stock stabilization fund when the market worsens,” said an unnamed official from the financial authority. “The fund will be created in mid-October after financial firms discuss and approve the agenda in board meetings.”

“We might execute the funds earlier if crisis conditions arrive earlier than expected,” the official said.

A stock stabilization fund is a fund created by securities firms, banks, and other financial institutions and related offices with an aim to inject funds to stabilize the market when investor sentiment sours and stock prices plunge.

Stock stabilization fund was last activated in March 2020 when the stock market crashed in the early outbreak of pandemic. The 10 trillion won fund, however, was not employed as the market rebounded.

FSC Vice Chairman Kim So-young told officials last week to make preparations so that measures to ease financial market volatility such as by reactivating the stock stabilization fund are taken at the right time.

The stabilization funding could be accompanied by short sale ban.

Short selling is a stock trading strategy where investors, mainly foreign and institutional investors, seek to make profit by borrowing shares and then returning them with shares purchased at a lower price. Short sale averaged 490.7 billion won per day in September, surging 40 percent from the previous two-month period.

Kospi has rebounded 2.4 percent and Kosdaq 2.9 percent Tuesday.

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