(Bloomberg) -- South Korea is on track to lift its ban on short selling across all stocks starting March 31, according to the nation’s top financial regulator.
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Allowing investors to completely resume short sales is necessary and justifying only a partial lift is difficult, Financial Services Commission Chairman Kim Byoung-hwan said at a briefing on Monday. The nation’s credibility in the international community is at stake and authorities have made efforts to complete systems that detect wrongdoings on stock transactions, he added.
In November 2023, the country’s market regulators banned all types of short selling for listed stocks in its $1.7 trillion equity market, following retail investors’ uproar over the trading practice. The restrictions triggered criticism that it would hurt the market’s appeal.
Read: Why South Korea Banned Short Selling and What’s Next: QuickTake
But the trading system needed to be fixed to uproot wrongdoings and revise rules for improved transparency and fairness, authorities said. The ban was extended once to expire at the end of March.
Once the restrictions are removed, it will be the first time since March 2020 that investors can short sell any stock listed in Seoul. The nation imposed a blanket ban on the strategy following a pandemic-fueled market plunge in 2020, and had partially lifted the prohibition the following year to allow short sales on the members of the Kospi 200 and the Kosdaq 150 indexes. The regulators then reimposed the total ban in late 2023.
During the latest curbs, officials have investigated global banks on their past short-selling transactions and fined some of them for rule violations. They have also developed an electronic monitoring system to detect naked shorting — a practice of selling shares without borrowing them first — that is illegal in Korea.
To address concerns that some single stocks can be targeted by short sellers, authorities plan to temporarily revise the criteria used in banning the practice of shorting certain stocks for a day. Any market impact from the resumption is expected to be short-lived, Kim said.
(Updates with background in the fifth paragraph)
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