South Korean govt likely to extend short-selling ban on resurging coronavirus concerns

  • 2020-08-21

The South Korean government is leaning toward extending the six-month ban on short selling amid a climate of economic uncertainty, said Finance Minister Hong Nam-ki during a August 20 National Assembly meeting.

The ban is set to expire on September 15, and the market has kept close watch on the Financial Services Commission (FSC), the main overseer, to see whether the ban would be extended or lifted.

But a resurgence in the spread of the coronavirus has fueled volatility in the stock market, creating a quandary for the government. Also, individual investors have continued their strong resistance to lifting the ban.

Such circumstances have increased the possibility of an extension, as stabilizing the market has become a priority given no sign of full recovery in the real economy anytime soon.

Meanwhile, the FSC said they have had no formal discussions with the Ministry of Economy and Finance regarding the short-selling ban.

“The FSC is an administrative body that follows a strict consensus system. The status of the ban will be decided after a thorough discussion among the commissioners,” a source from the FSC said.

Finance Minister Hong’s comments Thursday have sparked criticism that it was perhaps inappropriate for him to imply an extension, before formal discussions with the FSC.

On the other hand, there are views that Hong stepped up to alleviate pressure on the FSC, which has been wrestling with the decision.

“The short-selling ban rolled over from finance to the turf of politics ever since President Moon Jae-in stressed the need to encourage individual investors, and then someone from the outside stepped in to share the burden with the FSC,” said a source from the financial investment industry.

The Korean Securities Association will hold a public hearing to discuss short-selling policy revisions on September 8. Industry players have raised the possibility of the FSC announcing market-stabilization measures that include extending the short-selling ban a few days after the hearing — thus before September 15.

The FSC is expected to unveil measures to prevent individual investors from being alienated in the short-selling market, which is 99% made up of institutional investors and foreign investors. For example, revisions may include expanding the stock loan market to allow easier access to individual investors, as well as polishing the uptick rule.

Last year, short-selling trade reached a combined 103.5 trillion won ($87 billion) on both the KOSPI and KOSDAQ stock markets, of which retail investors accounted for a meager 1.1%.

This is the third time Korea has blocked short selling, following the global financial crisis in October 2008 and the European financial crisis in August 2011.

By Hyeong-ju Oh

ohj@hankyung.com

<Edited by Danbee Lee>