South Korea Reinstates Complete Short-Selling Ban Until June to Ensure Fair Trade

Ban re-imposed to address perceived disadvantage between institutional and retail investors; future review to be conducted in June to assess market conditions.

• The South Korean Financial Services Commission (FSC) announced the reinstatement of a complete ban on short-selling until June to ensure fair trading and 'level the playing field' between retail and institutional investors.
• Previously, the ban was lifted in May 2021 for trades concerning companies with large market capitalisation included in the KOSPI200 and KOSDAQ150 share price indices, although the restriction remained in place for most other stocks.
• Short-selling, the practice of selling borrowed shares and buying them back at a lower price to make a profit, has been criticized for facilitating unfair trades, especially by major foreign investment banks.
• The FSC will set up a team of investigators to examine short-selling by foreign investment banks for illegal activities, including 'naked short-selling,' which is selling shares without first borrowing them or ensuring they can be borrowed - a practice already banned in South Korea.
• Notably, the Financial Supervisory Service recently indicated plans to fine two Hong Kong-based investment banks found to have engaged in naked short-selling transactions worth nearly 56 billion won ($42.25 million). Several other foreign firms, including Credit Suisse, were previously fined for the same offense.

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