The Financial Services Commission (FSC) and Financial Supervisory Service (FSS) announced on Sunday that they will be temporarily suspending stock short selling until the second half of 2024 in order to address illegal short selling by global investment banks (IBs). This measure will take effect on Monday.
The financial regulators cited “growing external uncertainties” caused by a global slowdown and the Israel-Hamas conflict as reasons for the ban, as these have raised concerns in the domestic market. They also highlighted worries about the fair pricing of stocks in the local stock market due to the repeated exposure of illegal naked short selling by foreigners and institutional investors.
The FSS announced last week a plan to form a special task force to inspect all global IBs for illegal short selling, after discovering two Hong Kong-based IBs that had allegedly short sold 56 billion won (US$42.7 million) worth of stocks while knowing they would not be able to borrow the shares.
The FSC said the government will work to reform the system before the end of June 2024 to prevent short selling from creating an “unlevel playing field.” It will review alternative ways to establish a system that will prevent illegal naked short selling in real time.