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Currency traders are watching monitors on the Keb Hana bank headquarters in South Korea, on Thursday, February 24, 2022.
Anne Young Jun | AP
South Korea on Monday lifted the highest ban on short sale in the country’s history, after tightening the measures to transition to illegal transactions.
A ban with a short selling sale was introduced into November 2023 After a series of short violations, which provided numerous world investment banks.
Starting Monday, a short sale at the estimated 2,700 shares listed on Korea will be fully restored, the country’s financial services commission reports. Previously, it was only allowed for 350 KOSPI and Kosdaq benchmarks.
Unlike preliminary prohibitions in the country, the last ban is largely due to the normative reasons and aimed at protecting retail investors, the industry experts said.
Previous short -term prohibitions in Korea occurred with:
- October 2008 – May 2009 during the global financial crisis
- In August 2011 – November 2011 during the Eurozone debt crisis
- March 2020 – May 2021. During the COVID pandem
In addition, while preliminary prohibitions aimed at stabilizing financial markets, Macquarie analysts note targeted system reforms to improve the availability of retail investors.
Penalties for short sale were significantly strengthened when Korea exchanges submit a system that can detect naked short sale. Naked short sale involves reducing stock without borrowing and is illegal in South Korea.
The fines for illegal profits were also raised, and forced measures were strengthened. A profit of $ 5 billion has won (3.4 million dollars) and more, can lead to a period of five years to life imprisonment.
A politically controversial question?
The brief sale became a controversial issue in South Korea, with a strong pool of retail in the country stated that the practice pushes the values of the stock down.
“Retail investors make up more than 50% of the market volume, making the local stock market a key political problem for the Korean government,” said KB Securities Director Peter Kim.
Foreign investors were caught in the intersection of short sales ban, and some world investment banks were punished. As in February, the country’s financial supervision services imposed fines on several major investment banks Like JPMORGAN and MORGAN STANLEY for violation of short sale rules.
It is expected that the ban on the ban on the South Korea market is expected.
Returning to short sales should bring a positive effect to the common market and investors, said Kim, who added that the extra liquidity of the market would stimulate greater participation in more hedge fund and increase the transparency of the market.
“The value is set for growth. This is another reason for our conviction that the recovery of the short sale is likely to be neutral to the positive for the wide market,” said Macquarie analysts.
Goldman Sachs also provides for higher trading activities by foreign investors when short sales are restored, with about 70% of the total number of short sales conducted by foreign investors.
“After resumed, short-term activities should increase the market efficiency and prices, presenting the potential alpha capabilities,” the investment bank said.
