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Currency merchants observe monitors in the currency negotiation room of the Keb Hana Bank headquarters in Seoul, South Korea, Thursday, February 24, 2022.
Ahn Young-joon | AP
South Korea lifted the longest short sale ban on the history of the country on Monday, after hardening measures to represent illegal transactions.
The prohibition of short sale was implemented in November 2023 After a series of short sales infractions that involved numerous global investment banks.
As of Monday, the short sale in the 2,700 estimated actions that appear in the exchange of Korea will be completely restored, according to the country’s financial services commission. Previously, only 350 actions were allowed at the point of reference Kospi and Kosdaq of small capitalization.
Unlike previous short -sales prohibitions of the country, the last prohibition was largely driven by regulatory reasons and aimed at protecting retail investors, experts from the industry said.
The previous short -sales prohibitions in Korea occurred since:
- October 2008 – May 2009 during the world financial crisis
- August 2011 – November 2011 during the Eurozone debt crisis
- March 2020 – May 2021 during Pandemia Covid
In addition, while the previous prohibitions aimed at stabilizing financial markets, systemic reforms aimed at 2023 measure to improve the accessibility of retail investors, said Macquarie analysts.
The sanctions for short sale have been significantly strengthened, and Korea’s exchange introduces a system that can detect naked short sales. Short naked sale involves shortening actions without borrowing and is illegal in South Korea.
Fines have also been raised by illicit gains, and application measures have been pressed. A profit of 5 billion Koreans won ($ 3.4 million) or more can lead to a prison sentence between five years of life imprisonment.
A politically controversial problem?
The short sale has become a controversial issue in South Korea, with the strong group of retail investors of the Nation saying that the practice pushes the values of the actions down.
“Retail investors represent more than 50% of the market’s negotiation volume, which makes the local stock market a key political problem for the Korean government,” said KB Securities managing director Peter Kim.
Foreign investors have been caught in the sight of the prohibition of short sale, and some global investment banks have been penalized. As recent as February, the country’s financial supervision services Fines imposed on several large investment banks Like JPMorgan and Morgan Stanley for violating short sales rules.
The prohibition is expected to drive the South Korean market.
A return to short sale should bring positive effects for the general market and investors, said Kim, who added that the additional liquidity of the market will encourage a greater participation of more coverage funds and improve market transparency.
“The value is ready to overcome growth. This is another reason for our belief that the resumption of short sale is likely to be positive to the wide market,” Macquarie analysts said.
Goldman Sachs also foresees a greater commercial activity of foreign investors once they are sold in the short resumption, with about 70% of the total short sales activities carried out by foreign investors.
“Once resumed, short sales activities should improve market efficiency and price discovery, presenting possible alpha opportunities,” said the investment bank.
