SEOUL, Feb. 3 (Korea Bizwire) – South Korea’s financial regulator said Wednesday it will again extend a ban on stock short selling until May 2, amid growing calls from retail investors to prohibit the hedging practice.
The extension of the ban, which had been set to be lifted on March 15, also came after politicians called for financial authorities to keep the ban.
Financial Services Commission (FSC) Chairman Eun Sung-soo told reporters that the ban on large-cap 200 firms listed on the main KOSPI and 150 firms listed on the secondary KOSDAQ will be lifted from May 3.
A total of 917 stocks are listed on the KOSPI, and 1,470 stocks are listed on the KOSDAQ.
A ban of short-selling on the remaining 717 stocks on the KOSPI and the remaining 1,320 stocks on the KOSDAQ will continue to be in place from May 3.
From April 6, South Korea will toughen punishments against naked short selling, a short selling practice without securing underlying assets, Eun said.
In August last year, the Financial Services Commission (FSC) extended the temporary ban on stock short selling for another six months, or until March 13 this year, in a move to ease market jitters over the COVID-19 pandemic.
Stock short selling is a trading technique in which investors sell stocks they borrowed on the belief that share prices will fall in the near future.
When the prices fall, they can buy back the stocks at lower prices, pocket the profit and return the shares to the original owner. Increased short selling typically indicates that many investors anticipate a slump in stock prices.
Helped by aggressive purchases of shares by retail investors, South Korea’s benchmark stock index jumped about 30 percent last year.
Retail investors have criticized short selling for fueling price declines when stock markets fall, but foreign investors are unable to hedge their exposures to the local market under the ban.
Last year, small-time investors bought a net 63.7 trillion won (US$57 billion) worth of local stocks, while foreign and institutional investors sold a net 25 trillion won and 35 trillion won, respectively.