Korea to Extend Short Selling Ban Six More Months

Source: Regulation Asia Manesh Samtani, Regulation Asia 2020-08-28

During the six-month extension, the FSC plans to strengthen penalties for illegal short-selling and improve retail investor access to stock short sales.

Korea’s FSC (Financial Services Commission) has decided to extend the temporary ban on short-selling for six months to 15 March 2021.

The ban – applicable to KOSPI, KOSDAQ and KONEX stocks – was introduced in March in a bid to curb market volatility. “The six-month short sale ban put in place from March 16 until September 15 may have contributed in maintaining the stability of investor sentiment for retail investors,” the FSC said on Thursday (27 August).

The FSC cited market volatility amid concerns of a resurgence of Covid-19 cases as a reason for its decision to extend the short-selling ban.

During the extended ban, the FSC plans to strengthen sanctions and penalties for illegal short-selling activities. These measures are currently pending at the National Assembly, the regulator said.

In addition, the government will reexamine the role and function of market makers, and explore ways to improve retail investor access to short selling. Currently, short-selling in Korea is 99 percent dominated by institutional and foreign investors.

“The government should improve the rules to address the inequity in opportunity felt by retail investors in the field of stock short sale,” the FSC said. This will include measures to reduce the continued high interest rates charged by securities firms despite lower base rates set by BOK (Bank of Korea).

Other improvements may include the adoption of the uptick rule, in addition to the potential introduction of a Hong Kong-style short selling regime. In Hong Kong, stocks can only be sold short if they have a market cap exceeding a certain threshold and a daily turnover over 60 percent of market cap.

According to reports, industry observers say the extended ban may improve investor sentiment in the short-run, but in the long-run it could drive away foreign investors and negatively impact the inclusion of Korean stocks in global indices.

The FSC also announced in March that it would lift share buyback limits for listed companies for six months, effectively allowing companies to execute share buybacks all in one day instead of splitting them over a period of around 10 days. This will also be extended a further six months.

FSC Korea

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Korea to Extend Short Selling Ban Six More Months

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