An awkward compromise… 45 days extension of short selling ban

The Financial Services Commission extends the ban on short selling of stocks for 45 days. As a result, the ban on short selling, which was applied from March 16 last year, will continue for one year and two months until May 2 this year. Even though the Korean stock market has improved enough to open the KOSPI 3000 era and the International Monetary Fund (IMF) recommended to resume short selling, there is a market reaction that the financial authorities have been pushed back again, conscious of the backlash from the political world and public opinion.

Finance Commissioner Eun Seong-soo gave a briefing at the government office on the 3rd and announced that he would further extend the ban on short selling of all listed stocks in the securities, KOSDAQ, and KONEX markets until May 2. In addition, even if short selling is resumed, the market impact was minimized by allowing short selling for large stocks with large market caps, such as the KOSPI 200 and KOSDAQ 150, and prohibiting short selling for stocks with a small market capitalization.

The Financial Services Commission decided to increase the accessibility of short selling by individual investors by expanding the number of major securities firms from six to more than ten, taking into account the complaints of individual investors that’short selling is a lean playground for foreigners and institutions’. In addition, it plans to increase transparency by completing an integrated personal loan system by June. On March 13, last year, short selling bans were triggered due to the stock price plunge, so called’Black Friday the 13th’, only 1.1% of individual investors participated in short selling. At that time, foreigners and institutions led the short sale with 56.5% and 42.4%, respectively.

The FSC will strengthen surveillance and punishment for illegal short selling from April. Penalties are imposed and criminal penalties are imposed for more than one year in prison for’non-borrowing short selling’, where there is a high risk of default. In the case of’borrowing short selling,’ where stocks borrowed from other investors are sold, a constant monitoring system is established. The market maker system of securities companies will also be improved.

Short selling is an investment technique that aims for a profit by expecting a decline in the stock price of a specific stock, lending and selling stocks, and buying and repaying stocks when the actual stock price falls.

In the midst of the Corona 19 crisis last year, developed countries banned short selling and resumed after a month or two, whereas South Korea and Indonesia continued to block short selling.

[강계만 기자 / 진영태 기자]
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