Financial Services Commission Doubles Number of Stocks Banned from Short Selling... "Number of Overheated Stocks Designated Increases from 205 to 410"

[Asia Economy Reporter Park Jihwan] As the government faces increased financial volatility with the stock market plummeting daily due to the novel coronavirus disease (COVID-19), it announced measures to stabilize the market by expanding the scope of designated short-selling targets and extending the ban period on short selling. First, short selling will be banned on 410 stocks out of about 2,000 KOSPI and KOSDAQ companies, with plans to expand the ban to all stocks if necessary.

The Financial Services Commission (FSC) announced on the 10th that starting from the 11th, as part of stock market stabilization measures, it will relax the criteria for designating overheated short-selling stocks for three months. Once designated as an overheated short-selling stock, short selling will be banned for 10 trading days (two weeks) starting from the 11th. Currently, if a stock is designated as an overheated short-selling stock, short selling is prohibited only for one trading day following the designation.

The FSC stated that it will implement the revised criteria (Exchange enforcement rules) on the same day, and if the Exchange announces a stock as an overheated short-selling stock after market close, short selling on that stock will be banned for 10 trading days (two weeks) starting from the 11th.

The scope of stocks designated as overheated short-selling stocks will also be expanded. Going forward, if the short-selling trading value of a KOSPI stock that has dropped more than 5% on the day increases by three times or more compared to usual (currently six times), it will be designated as an overheated stock. For KOSDAQ stocks, the threshold for the increase in short-selling trading value will be significantly lowered from five times to two times. The increase rate is calculated by comparing the stock’s short-selling trading value on the day to the average short-selling trading value over the previous 40 trading days.

According to financial authorities, about 205 stocks have been designated as overheated short-selling stocks so far this year. An FSC official estimated, "If the criteria for designating overheated short-selling stocks are strengthened, the number of designations will increase about twofold compared to the current standards."

Additionally, new criteria have been established for stocks that have fallen more than 20%, setting the short-selling trading value increase multiplier at 2 times for KOSPI and 1.5 times for KOSDAQ.

An FSC official said, "We also considered banning short selling on all stocks, but considering the stabilization seen today (the 10th) in the Asian markets and New York futures market, we decided on a partial ban." The official emphasized that since short selling has positive functions such as discovering the appropriate price of individual stocks, a blanket ban on short selling across the entire market should be approached cautiously.

Regarding some opinions that "foreigners can continue short selling through market-making functions," the FSC rejected this as invalid. The FSC stated, "Currently, all market makers for Exchange-listed stocks are domestic securities firms, so the claim that foreigners can continue short selling through market-making functions is not valid. Moreover, short-selling orders by foreigners on overheated short-selling stocks are fundamentally blocked by the Exchange system."

This content was produced with the assistance of AI translation services.