Korea to allow short selling on all stocks March 31: financial regulator

Gov't to ease criteria for designating overheated short-selling stocks

By Jun Ji-hye

Korea's short selling resumption scheduled for next month will apply to all stocks, extending beyond those included in the KOSPI 200 and Kosdaq 150 indexes, the top financial regulator said Monday.

The comments came amid growing calls for a partial resumption to mitigate market shocks.

Kim Byoung-hwan, the chief of the Financial Services Commission, stressed that the government has spent more than a year refining the short selling system and regulations to address concerns over unfair practices, with the goal of establishing a system capable of detecting unfair trading even after the full resumption of the practice on March 31.

"Previously, when the ban was lifted in 2021 following the outbreak of the COVID-19 pandemic, a partial resumption was implemented due to concerns over unfair trading practices involving short selling. At that time, the resumption was limited to large-cap stocks with a high proportion of foreign investors," Kim said during a press conference. "However, this time, the plan is to resume short selling for all stocks."

Korea imposed a ban on short selling in November 2023 after the authorities uncovered a series of naked short selling violations involving several global investment banks.

Previously, the government imposed a ban on short selling of listed stocks in March 2020, after a sharp market decline due to the COVID-19 pandemic. Then in May 2021, the practice was partially resumed for stocks included in the KOSPI 200 and Kosdaq 150 indexes. This had since remained in place until the government reinstated the ban in November 2023.

As part of measures to mitigate potential market shocks when short selling resumes, the government plans to ease the criteria for designating overheated short-selling stocks, Kim said.

Financial authorities can designate stocks as overheated short-selling stocks if they experience an abnormal surge in short selling and a sharp price drop. When this happens, a short-selling ban is imposed automatically on the following trading day.

“It is difficult to predict the market impact from the resumption of short selling. However, concerns remain over short selling being concentrated on a handful of stocks. To address this, we plan to implement supplementary measures, including temporarily easing the criteria for designating overheated short-selling stocks,” Kim said. “After conducting simulations to assess the effectiveness of this designation, we will announce specific criteria by next month.”

If the requirements are eased, more stocks can be designated as overheated short-selling stocks, helping to reduce concentration effects in the early stages of the resumption, amid concerns that the practice may be heavily focused on certain shares, such as this year’s surging shipbuilding stocks.