Short Selling 'Partial Resumption' from Tomorrow... 13,000 Retail Investors Complete Pre-Education

[Asia Economy Reporter Ji Yeon-jin] Short selling, which had been banned for over a year, will partially resume starting from the 3rd.

According to the financial investment industry on the 2nd, short selling will be allowed from the 3rd for stocks included in the KOSPI200 and KOSDAQ150 indices. Short selling is an investment method where investors borrow stocks they do not own and sell them, then buy them back at a lower price to return the shares, profiting from the price difference. The financial authorities banned short selling from March 16 last year, when stock prices fell sharply due to the COVID-19 pandemic, extended the ban twice, and it is now being resumed after 1 year and 2 months.

From the first day of the full short selling ban until the 30th of last month, just before the resumption, the KOSPI and KOSDAQ indices rose by 77.70% and 87.68%, respectively. However, as the market's cautious sentiment ahead of the short selling resumption weighed on the market, both the KOSPI and KOSDAQ indices declined for four consecutive days recently. In particular, during this period, the KOSPI200 and KOSDAQ150 indices, which are subject to short selling resumption, fell by 2.31% and 6.15%, respectively.

However, experts predict that while short-term price fluctuations by individual stocks are inevitable with the lifting of the short selling ban this time, the overall impact on the direction of the entire index will be limited. Han Ji-young, a researcher at Kiwoom Securities, said, "The resumption of short selling may increase short-term volatility in individual stocks, sectors, and even the overall domestic stock market," but added, "Looking back at the history of the stock market, short selling does not change the market’s overall direction."

The Financial Services Commission has required that, in line with the resumption of short selling, individual investors who have no prior experience with short selling must complete a 30-minute pre-education session provided by the Korea Financial Investment Association and a 1-hour simulated trading session by the Korea Exchange before they can engage in short selling transactions.

As of the 30th of last month, the number of individual investors who completed the mandatory pre-education for short selling exceeded 13,000, and the number of investors who completed the Korea Exchange’s short selling simulated trading reached 5,000 as of the previous day. Considering that there were 6,400 individual accounts that engaged in short selling in 2016, it appears that individual investors’ interest has increased with the resumption of short selling this time.

Funds waiting for short selling have also increased significantly. As of the 30th of last month, the balance of securities lending transactions stood at 56.3405 trillion KRW, marking the highest amount this year. Securities lending transactions refer to deals where institutions holding stocks lend them to borrowing institutions for a fee, with an agreement to return them later. Since naked short selling is prohibited in the domestic stock market, stocks must be borrowed to conduct short selling. Therefore, the balance of securities lending transactions, which represents the volume of stocks borrowed by institutions and foreigners but not yet returned, can be used as a leading indicator of short selling.

However, securities lending transactions are also used for various purposes such as the creation and redemption of exchange-traded funds (ETFs) and repurchase agreement (Repo) transactions, so changes in the balance of securities lending transactions do not necessarily correspond directly to changes in short selling volume.

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