EXTENSION OF SHORT SALE BAN

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The hottest issue among private investors is the abolishment of the short sale system. Subsequently, the ban on short sale, which went into effect last March, has been extended to May 2nd. Financial authorities announced that a new system will be established in May which would allow individual investors’ participation and wipe out illegal short sale activities.

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​The Financial Services Commission concluded that the resumption of short sale will be deferred and even when short sale is allowed again, large-cap stocks will be the first ones in line. The resumption of short sale has been pushed back about a month and a half, from March 16th to May 3rd.

[Soundbite] Eun Sung-soo(Chair, Financial Services Commission) : "We agreed that it is difficult to completely or indefinitely ban the global practice of short sale."

Short sale will be allowed for large-cap stocks first. Starting off will be big stocks comprising KOSPI 200 and KOSDAQ 150. The number of shares account for a fifth of KOSPI issues and one-tenth of KOSDAQ issues. These company stocks are not impacted much by the resumption of short sale as they feature large market capitalization and high trading volume. Other items are postponed indefinitely, which means it will be determined again in the future, whether they can be sold short.

[Soundbite] Eun Sung-soo(Chair, Financial Services Commission) : "As the market is very concerned about resuming short sale activities, we plan to allow short sale only partially to minimize the shock to the stock market."

Financial authorities presented a plan to remedy an “Uneven playing field,” which supposedly benefits only institutional and foreign investors. Starting in May, between two to three trillion won’s worth of short sale stocks will be set aside for individual investors. This new measure incorporates private investors’ requests to boost their chances of participating in short sale activities. However, the initial investment in short sale has been capped at 30 million won and investment training is made mandatory to protect private investors. Monitoring and crackdown on illegal short sale have been toughened. South Korea is the only OECD member to ban short sale. Since re-allowing short sale trade is inevitable, the FSC plans to soften the impact of short sale resumption. However, the new measure appears to be just a compromise reached with retail investors and politicians who have been opposing the restart of short sale.