IMF: "Stabilization of Korean Financial Market... Possible Resumption of Short Selling"

[Image source=Reuters Yonhap News]

[Asia Economy reporters Moon Chaeseok and Jang Sehee] The International Monetary Fund (IMF) stated on the 28th that it believes short selling can be resumed in the Korean financial market.

Andreas Bauer, head of the IMF mission (Deputy Director of the Asia and Pacific Department), said in a video briefing on the results of the 2021 IMF annual consultation, "The Korean financial market has stabilized significantly since the COVID-19 pandemic, and the economy is also recovering, so I think it is possible to resume short selling."

Short selling is an investment technique where investors borrow stocks expecting the price to fall, sell them, and then buy back the stocks at a lower price to return them, thereby making a profit.

Bauer explained, "Short selling itself is a common practice in major financial markets and is adopted as a method to manage risks more efficiently, making it a useful tool in financial markets. However, it is also clear that it has the effect of maximizing market volatility."

He added, "Completely banning short selling to secure an equal market is considered an unsharp response and could involve very high costs in terms of market efficiency."

He continued, "I believe it is possible to respond through strengthening financial consumer protection and regulations. The IMF understands that the (Korean) government authorities are taking such measures," he added.

Earlier, in March last year, as the stock market plunged due to the impact of COVID-19, the Financial Services Commission temporarily banned short selling for six months to stabilize the market, and in September of the same year, extended the ban for another six months.

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