© Reuters. A reporter walks past an electronic map of the Korea Composite Stock Price Index (KOSPI) at the Korea Stock Exchange (KRX) in Seoul, South Korea January 20, 2016 REUTERS/Kim Hong-Ji/File Photo
By Jack Kim
SEOUL (Reuters) – South Korea will reimpose a ban on short-selling stocks on Monday until at least June to promote a “level playing field” for retail and institutional investors, financial authorities said on Sunday .
The ban was lifted in May 2021 for transactions involving shares of large market capitalization companies included in the KOSPI200 and KOSDAQ150 stock indices. The restriction remained in effect for most other stocks.
Short selling involves selling borrowed shares to buy them back at a lower price and pocket the difference.
“This measure aims to fundamentally alleviate the inequalities between institutional investors and retail investors,” Financial Services Commission (FSC) Chairman Kim Joo-hyun said at a press briefing.
“Amid continued uncertainty in financial markets, major foreign investment banks have engaged in unfair trading transactions…and we have determined that it would be impossible to maintain fair trading discipline,” Kim said.
The FSC will review market activity in June to decide whether there is significant improvement to lift the ban, he said.
The regulator announced last week that it would create a team of investigators to investigate short selling by foreign investment banks for illegal activities, including so-called naked short selling.
Naked short selling – in which an investor sells stocks short without first borrowing them or determining whether they can be borrowed – is banned in South Korea.
The Financial Supervisory Service announced in October that it was likely to fine two Hong Kong-based investment banks that it said had engaged in naked short-selling transactions worth 40 billion won ($29.58 million) and 16 billion won respectively.
Earlier this year, the regulator fined five foreign companies, including Credit Suisse, for naked short selling.
Officials and market observers have cited uncertainty around short-selling regulations among factors needing to be resolved for influential index provider MSCI to upgrade South Korea to developed market status.