Short Selling Ban Extended for 6 Months...Financial Authorities to Announce Soon

If Early, After Today's Market Close...Multifaceted Review of Regulatory Improvement Measures

[Asia Economy Reporter Park Jihwan] Financial authorities will soon announce a plan to extend the ban on short selling for an additional six months. Considering the impact on the market, the announcement is expected to be made after the stock market closes. A Financial Services Commission (FSC) official stated on the 27th, "It is difficult to disclose the exact date for the resolution on the extension of the short selling ban, but after hearing related opinions at meetings with the securities industry, the announcement will be made after the market closes this week." The FSC plans to announce the extension of the short selling ban as early as today or, at the latest, immediately after the market closes on the 28th.

The extension plan for the short selling ban is a decision made by the FSC. As a market measure, the Korea Exchange (KRX) proposes it, and the FSC passes the resolution. A KRX official said, "We are preparing to expedite the formal proposal to the FSC regarding the extension of the short selling ban." This additional extension is interpreted as a response to the resurgence risk of the novel coronavirus disease (COVID-19), which was the original reason for the short selling ban, and the market situation where stock market volatility ranges from 2% to 4%.

The extension plan for the short selling ban is expected to be decided through an extraordinary meeting, similar to the 'first full ban on short selling' in March, rather than at the regular FSC meetings held every two weeks. Although many expected the extension plan to be resolved at the regular meeting held the previous day, the final decision will be made after listening to industry opinions at the securities industry meeting held in the afternoon.

The financial authorities have settled on extending the short selling ban for all stocks for an additional six months. Although various scenarios such as differentiated measures by stock or limiting the ban to the KOSPI market were suggested, the decision was made to extend the ban across the entire stock market for six months.

However, detailed improvements to the short selling system will not be included. After announcing the extension of the ban period, the authorities intend to review various measures to improve the short selling system. There have been continuous criticisms that short selling favors institutions and foreigners, who have superior information gathering and capital compared to individual investors, creating a "tilted playing field." The FSC plans to consider ways to expand individual investors' participation in short selling in the future.

A financial investment industry official explained, "There is a significant difference in risk between individual investors buying stocks with their own money and short selling by borrowing stocks they do not own. When stock prices fall, buying stocks limits the risk to the invested capital, but short selling carries unlimited liability."

A financial authority official emphasized, "We are likely to prioritize methods that expand individual investors' participation in short selling, such as activating the stock lending system for individuals," adding, "A cautious approach is also necessary to prevent unexpected damages to individual investors, as seen in recent repeated cases of private equity fund redemption suspensions."

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