South Korean financial authorities announced an extension of the short-selling ban until the end of next March, citing the need for additional time to establish an electronic system to prevent illegal trades. The Financial Services Commission (FSC) initially imposed the ban in November to create a fairer trading environment between institutional and retail investors. The ban, originally set to expire this month, will now continue into 2024.
Short-selling, a trading strategy where shares are borrowed to be sold and later repurchased at a lower price, has been under scrutiny due to concerns over illegal activities. FSC Vice Chairman Kim Soyoung emphasized the risk of large-scale illegal trades resuming without a proper electronic system during a live-streamed news conference in Seoul.
The decision aims to alleviate worries about illegal trades impacting fair price formation by implementing an electronic monitoring system. The FSC plans to issue guidelines for institutional investors to voluntarily adopt preventative measures within the year. Additionally, the Korea Exchange will develop a centralized system to detect “naked” short-selling—selling shares without holding them—to monitor institutional transactions.
The FSC’s move follows allegations that nine global investment banks engaged in illegal short-selling trades worth 211.2 billion won ($153.6 million) from May 2021 to the end of last year. Despite speculation, Kim dismissed the likelihood of life imprisonment for illegal short-selling, noting it would be improbable under normal circumstances.
Some analysts had previously criticized the short-selling ban as a political maneuver to gain favor with South Korea’s 14 million retail investors ahead of the general elections this April.
