Today, South Korea's Financial Services Commission (FSC) announced a ban on stock short-selling, a move that led to a significant rise in the country's major stock indexes. The KOSPI index jumped by 5.66 percent to close at 2,502.37, while the KOSDAQ surged by 7.34 percent to end at 839.45. The ban was implemented amid concerns over market instability and is expected to remain in place until at least June 2024.
The decision to reimpose the ban on short-selling shares of companies with a large market capitalization was meant to protect retail traders and level the playing field against "unfair trades" by large institutional investors. The FSC cited global economic instability due to the Israel-Hamas conflict and South Korea's economic weakness as reasons for the ban.
The FSC views short-selling, which involves selling borrowed stocks in anticipation of a price drop, as a destabilizing force in the market. In response to this measure, the regulator has initiated an investigation into international banks frequently engaged in naked short-selling, a practice that can lead to pressure exceeding a stock's total float.
This action follows recent penalties issued by South Korea's Financial Supervisory Service against two Hong Kong-based banks for engaging in naked short-selling, which has been banned since the 2008 crisis. Earlier this year, five other foreign firms were also penalized for similar practices. The FSC has pledged proactive measures to eliminate illegal short-selling activities during the ban period.
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