South Korea reimposes stock short-selling ban until June to ‘level the playing field’

SEOUL (Reuters) – South Korea will reimpose a ban on short selling of stocks from Monday until at least June to promote a “level playing field” for individual and institutional investors, financial authorities said on Sunday.

The ban was lifted in May 2021 on trades involving shares of large-cap companies included in the KOSPI200 and KOSDAQ150 stock price indices. The restriction remained in place for most other stocks.

Short selling involves selling borrowed shares to buy them back at a lower price and pocketing the difference.

“This measure is mainly aimed at smoothing the ‘tilted playing field’ between institutional and retail investors,” Kim Joo-hyun, chairman of the Financial Services Commission (FSC), said at a press conference.

“Amid continuing uncertainty in financial markets, major foreign investment banks have as a practice engaged in unfair transactions… and we decided that it would be impossible to maintain fair trade discipline,” Kim said.

He said the Financial Services Commission would review market activity in June to decide whether there was a significant improvement to allow the ban to be lifted.

The regulator said last week that it would set up a team of investigators to investigate short selling by foreign investment banks due to illegal activity including so-called naked short selling.

Naked short selling — where an investor sells shares short without first borrowing them or determining the possibility of borrowing them — is banned in South Korea.

The financial watchdog said in October that it was likely to fine two Hong Kong-based investment banks that it determined had engaged in short-selling transactions worth 40 billion won ($29.58 million) and 16 billion won, respectively.

Earlier this year, the regulator imposed fines on five foreign companies, including Credit Suisse, for short selling.

Officials and market watchers alike have cited uncertainty over short-selling regulation as among the factors that need to be resolved for index provider MSCI to upgrade South Korea to developed market status.

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