South Korea is preparing to fully lift its ban on short selling across its stock market by March 31, a decision underscored by the Financial Services Commission (FSC) Chairman, Kim Byoung-hwan.
In a statement on Monday, Kim emphasized that restoring investors’ ability to engage in short sales is crucial and partial measures are not justified. The need to uphold the nation’s credibility on the global stage has motivated efforts to ensure robust systems that monitor potential misconduct in stock trading.
Initially, the prohibition, enforced in November 2023, halted all forms of short selling in Korea’s $1.7 trillion equity market. This response came in the wake of significant retail investor protests against the practice, despite criticisms suggesting that such restrictions could diminish the market’s attractiveness. However, market authorities underscored the necessity of refining the trading framework to eliminate illicit activities and enhance transparency. Consequently, the ban was extended through March 2025 as part of these reformative actions.
Throughout the suspension period, South Korea’s regulators have scrutinized global financial institutions for previous infractions related to short selling, resulting in penalties for rule violations. They have also instituted an electronic monitoring system designed to prevent illegal naked shorting — selling shares without prior borrowing.
South Korea’s financial regulator has handed down penalties against several global financial institutions, including JPMorgan, Morgan Stanley, Nomura, and UBS, for breaching short-selling regulations within the nation’s stock market this month.
To mitigate concerns that specific stocks could become targets for short sellers when the ban is lifted, authorities have proposed interim adjustments to the criteria that suspend short selling of certain stocks temporarily. According to Kim, any initial market disturbances from resuming short selling are expected to be transient.
