Korea may consider a full lift in short-selling ban this year

Financial Supervisory Service Governor Lee Bok-hyun, right [Photo by Han Joo-hyung]

South Korea may consider fully lifting a short-selling ban this year if “financial turmoil is cleared within a couple of months” to make the country an attractive investment destination for foreigners, according to the country’s financial watchdog chief.

“If the dust of the financial turmoil is cleared … we will look into deregulation of short selling, hopefully this year,” Financial Supervisory Service Governor Lee Bok-hyun was quoted as saying in an interview with Bloomberg TV. “We will definitely take some measures to make the market more attractive to foreign investors.”

Short selling is an investment practice of selling stocks the seller does not own with the intent of repurchasing them at a lower price in the future. The scheme is seen as one of the factors pulling down the stock market as short sellers bet on a downturn in the market.

The Korean financial authority prohibited short selling as a measure to stabilize the stock market after the outbreak of the pandemic in March 2020. It then partially lifted the curb on the sales of large-cap shares on the Kospi 200 and Kosdaq 150 indexes in May 2021.

Lee told Bloomberg TV that the Korean stock market has been in tough times amid rising inflation and interest rate hikes and lifting the short selling restriction has been distant under the circumstances.

His remarks are in line with Korea Exchange Chairman Sohn Byung-doo who noted in a different interview on the need for a full resumption in short selling activity.

The lift in the ban will help attract more foreign investors to the Korean market.

Market insiders believe that the ban has been a barrier preventing Korea from being classified as a developed market in the Morgan Stanley Capital International (MSCI) index.

Lee also hoped for an upgrade in the MSCI index, although more would have to be done to meet the standard.