All listed stocks in S. Korea available for short selling, bringing short-term volatility

A short-selling ban that went into effect in November 2023 has been lifted with tougher measures in place to crack down on illegal transactions.

Park Jun-han covers this lifting and the stock market's response on this Monday.

Starting Monday, South Korea resumed short selling on its stock market after a 17-month suspension.

And for the first time in five years, the country is allowing short selling for all listed stocks.

With investors now able to borrow and sell stocks before buying them back later, the market is seeing increased volatility, which has intensified amid falling global stock prices.

The benchmark KOSPI, at around 1:30 PM, briefly dropped below 2,480 points, declining over 3 percentage points compared to last Friday's market close of 2,557.98.

At the market's close on Monday, 3:30 PM local time, the KOSPI closed at 2,481.12, down 76.86 points, or 3.0%, from last Friday's Market close.

Short selling involves investors borrowing stocks, selling them at the market price, and later repurchasing them, ideally at a lower price, to return to the lender.

"That's what you have in a normal market, in any international market. If it goes too high, you have short sellers to stop it from going too high."

To create a safer and fairer stock trading environment and to facilitate the return of short selling, the Korea Exchange is implementing measures such as strengthened penalties for illegal short selling and increased monitoring of transaction activities.

Additionally, those who borrow stocks must repay them within 90 days, with an extension of up to a year.

"Well, the large complaint that the individual investors had was that larger companies were engaged in naked short selling. That means short selling without borrowed stocks on hand.

And then I believe they have now databases for short-selling transactions so that anybody can see that the transactions are done fairly rather than below the table sometimes."

Amid short-term market volatility, industry experts emphasize the long-term necessity of short selling in Korea, as it is expected to attract more foreign capital inflow, enhance liquidity, and help investors manage risks.

Park Jun-han, Arirang News.