Korea bans stock short selling until June 2024

Chairman of the Financial Services Commission Kim Joo-hyun, right. [Photo by Lee Chung-woo]

South Korea is banning short-selling transactions from Monday until the first half of next year, re-imposing the suspension in less than three years after it entirely prohibited the activity in March 2020 due to the Covid-19 pandemic.

“The government will completely ban short selling until the first half of 2024 and work on improving the short selling system,” said Kim Joo-hyun, chairman of the Financial Services Commission, on Sunday.

The Korean government had resumed short selling of limited stocks in 2021, including 200 stocks on the main Kospi and 150 stocks on the secondary Kosdaq.

The latest entire short selling ban is the first of its kind to be implemented without a major external shock that could disrupt the entire capital market, such as the global financial crisis in 2008, the European sovereign debt crisis in 2011, and the pandemic in 2020.

“Recent market volatility and prevalent illegal short selling practices have raised concerns about undermining market stability and fair price formation,” Kim said. “In this regard, we have decided to completely ban short selling until the first half of next year.”

He added that the primary goal of capital market policy is to create a fair and efficient market that protects investors and earns the trust of the market.

“The government will make every effort to ensure that the short selling system becomes a trusted system for all investors,” he added.

Lee Bok-hyun, head of the Financial Supervisory Service (FSS), noted that the watchdog has “recently uncovered intentional naked short selling by two global investment banks, which confirms the long-standing suspicions of illegal activities by global IBs in the market and constitutes a very serious matter.”

“It is necessary to fully investigate global IBs, impose strict punishment for violations, and strengthen the system to prevent naked short selling from occurring in the first place,” he said.

The financial authorities said that they have uncovered additional cases of illegal short selling by foreign IBs, including BNP Paribas and HSBC.

“We will launch a full investigation into about 10 global IBs,” Lee said.