Financial Services Commission applies short selling ban in South Korea
06 November 2023 South Korea
Image: sayan/stock.adobe.com
South Korea’s Financial Services Commission has posed a ban on stock short selling in domestic markets as it looks to ‘improve the system’.
The ban will commence from today (6 November 2023) until the end of June 2024, and will prohibit the short selling of all KOSPI, KOSDAQ and KONEX listed items.
Following the discovery of a number of illegal naked short selling practices — conducted by foreign and institutional investors — the FSC finds this activity in the market ‘very dire’.
The commission says the illegal activity “can erode the fair pricing function of the market and degrade confidence in the market”.
During the period of banning short selling, the South Korean government will work on a three-fold plan to improve the system and root out illegal activities when short selling resumes in 2024.
The FSC will focus on measures to ‘level the playing field’ between institutional and retail investors, which remains ‘not levelled’.
Further, the authorities will search for an alternative to building a real-time illegal naked short selling detection and prevention system. It will also analyse the recent cases in this area and seek guidance from market experts and stakeholders
Thirdly, the authorities will step up efforts to detect and punish naked short selling activities with the launch of a special short selling investigation unit which aims to ‘thoroughly’ look into this sector.
At a media briefing on 5 November, FSC chairman Kim Joo-hyun said that the top priority of the government’s capital market policy is to create a fair and efficient market to protect investors and ensure confidence in the market.
Joo-hyun added that the government will do all it can to bring improvements to the country’s short selling system, so that it can develop into one where every investor can have confidence.
Commenting on the decision, the Pan Asia Securities Lending Association (PASLA) says: “We regret the Financial Services Commission's announcement to reimpose a full ban on short selling in South Korea. There is never any place for illegal, naked short selling.
“PASLA is fully committed to promoting open, transparent and regulated securities lending, which is a prerequisite for covered short selling, across Asia Pacific equity markets.
“We will continue our close engagement with our Korean stakeholders and support the review of the market structure, rules and infrastructure. We look forward to the introduction of a new framework for regulated short selling in the near future.”
The ban will commence from today (6 November 2023) until the end of June 2024, and will prohibit the short selling of all KOSPI, KOSDAQ and KONEX listed items.
Following the discovery of a number of illegal naked short selling practices — conducted by foreign and institutional investors — the FSC finds this activity in the market ‘very dire’.
The commission says the illegal activity “can erode the fair pricing function of the market and degrade confidence in the market”.
During the period of banning short selling, the South Korean government will work on a three-fold plan to improve the system and root out illegal activities when short selling resumes in 2024.
The FSC will focus on measures to ‘level the playing field’ between institutional and retail investors, which remains ‘not levelled’.
Further, the authorities will search for an alternative to building a real-time illegal naked short selling detection and prevention system. It will also analyse the recent cases in this area and seek guidance from market experts and stakeholders
Thirdly, the authorities will step up efforts to detect and punish naked short selling activities with the launch of a special short selling investigation unit which aims to ‘thoroughly’ look into this sector.
At a media briefing on 5 November, FSC chairman Kim Joo-hyun said that the top priority of the government’s capital market policy is to create a fair and efficient market to protect investors and ensure confidence in the market.
Joo-hyun added that the government will do all it can to bring improvements to the country’s short selling system, so that it can develop into one where every investor can have confidence.
Commenting on the decision, the Pan Asia Securities Lending Association (PASLA) says: “We regret the Financial Services Commission's announcement to reimpose a full ban on short selling in South Korea. There is never any place for illegal, naked short selling.
“PASLA is fully committed to promoting open, transparent and regulated securities lending, which is a prerequisite for covered short selling, across Asia Pacific equity markets.
“We will continue our close engagement with our Korean stakeholders and support the review of the market structure, rules and infrastructure. We look forward to the introduction of a new framework for regulated short selling in the near future.”
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