South Korea short selling ban extended to 2021
27 August 2020 Seoul
Image: JoshuaDavenport/Adobe.com
South Korea’s financial regulator today confirms that the pandemic-inspired short selling ban that was due to expire on 16 September will now be extended until 15 March.
The Financial Services Commission (FSC) cited concerns over fresh market volatility caused by a resurgence in COVID-19 cases in the country as justification for the six-month push back.
Additionally, the regulator — which has traditionally taken a hawkish view on short sellers at the best of times — is set to ratchet up penalties on illegal short selling activities. Specific details on what this means in practice are not yet available.
The East Asian nation imposed a ban on constituents of the KOPSI, KOSDAQ and KONEX indexes in March as equities prices tumbled in reaction to the initial spike in COVID-19 infections that was significantly disrupting the length and breadth of the economy.
South Korea has so far been hailed as a success story in the global battle against the pandemic but, as the country and the world re-opens from lockdown, domestic infection rates are spiking to their highest levels since mid-March.
According to Worldometre’s COVID-19 tracker, South Korea is currently recording several hundred new cases of COVID-19 a day, compared to only a few dozen per day at the beginning of August.
Commenting on the FSC’s decision, the Pan Asia Securities Lending Association (PASLA) warns that “regulated, transparent and covered short-selling is an important characteristic of developed equity markets globally”.
The trade body adds that an active short selling market helps to create liquidity, reduce costs for market participants, manage risk in investors’ portfolios and encourage good corporate governance.
“Over the long term, we believe that markets in which participants can express different views will be more resilient, more attractive to global institutional investors and better positioned to support economic growth and prosperity,” PASLA states.
In the same market note, the FSC confirms that the buyback limits for listed companies will also be extended during the additional six-month period.
Elsewhere in the note, the regulator also commits to improving the accessibility of retail investors to the short selling market. Again, specific details on this matter are not yet forthcoming.
Meanwhile, the blanket ban on short selling has unsurprisingly had a dampening effect on South Korean securities lending revenue.
IHS Markit data reveals that South Korean lending revenue for July only reached $14.9 million, down 54 percent year-on-year and representing the market’s lowest value for any month this year.
The Financial Services Commission (FSC) cited concerns over fresh market volatility caused by a resurgence in COVID-19 cases in the country as justification for the six-month push back.
Additionally, the regulator — which has traditionally taken a hawkish view on short sellers at the best of times — is set to ratchet up penalties on illegal short selling activities. Specific details on what this means in practice are not yet available.
The East Asian nation imposed a ban on constituents of the KOPSI, KOSDAQ and KONEX indexes in March as equities prices tumbled in reaction to the initial spike in COVID-19 infections that was significantly disrupting the length and breadth of the economy.
South Korea has so far been hailed as a success story in the global battle against the pandemic but, as the country and the world re-opens from lockdown, domestic infection rates are spiking to their highest levels since mid-March.
According to Worldometre’s COVID-19 tracker, South Korea is currently recording several hundred new cases of COVID-19 a day, compared to only a few dozen per day at the beginning of August.
Commenting on the FSC’s decision, the Pan Asia Securities Lending Association (PASLA) warns that “regulated, transparent and covered short-selling is an important characteristic of developed equity markets globally”.
The trade body adds that an active short selling market helps to create liquidity, reduce costs for market participants, manage risk in investors’ portfolios and encourage good corporate governance.
“Over the long term, we believe that markets in which participants can express different views will be more resilient, more attractive to global institutional investors and better positioned to support economic growth and prosperity,” PASLA states.
In the same market note, the FSC confirms that the buyback limits for listed companies will also be extended during the additional six-month period.
Elsewhere in the note, the regulator also commits to improving the accessibility of retail investors to the short selling market. Again, specific details on this matter are not yet forthcoming.
Meanwhile, the blanket ban on short selling has unsurprisingly had a dampening effect on South Korean securities lending revenue.
IHS Markit data reveals that South Korean lending revenue for July only reached $14.9 million, down 54 percent year-on-year and representing the market’s lowest value for any month this year.
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