South Korea has banned short selling until June 2024

In an effort to placate individual investors ahead of the parliamentary elections that will take place in 2019, South Korea's financial regulator placed a blanket ban on short selling, which caused shares to soar on Monday morning.

The nation's benchmark Kospi index increased by as much as 4%, led by increases of over 20% for battery business LG Energy Solution and 28% for battery materials manufacturer Posco Future M. The Kosdaq index, which focuses on technology, increased by as much as 6%.

All South Korean listed equities are subject to the Financial Services Commission's prohibition, which is set to last until June 2024. Kim Joo-hyun, the chair of the Financial Services Commission, stated on Sunday that "concerns remain high over fair price formation in the domestic stock market due to repeated illegal naked short selling by global institutional investors, despite previous regulatory improvements."

In addition, he stated that the government would look into "naked" short-selling by international institutional investors and that the FSC would use the time between now and June of next year to strengthen short-selling restrictions.

Kim declared, "We will take a zero-tolerance stance against unlawful naked short-selling activities." "Those who commit crimes will face harsh penalties and criminal prosecution."

Last month, financial regulators announced their intention to penalise two international investment banks—which they haven't named—in Hong Kong for engaging in "routine and intentional" naked short selling of stocks. The illicit act of short-selling shares without first obtaining a loan or verifying their ability to be borrowed is known as "naked short selling."

The prohibition undoes the authorities' 2021 decision to remove limitations on short sales of the Kospi 200 and Kosdaq 150 stocks. In order to support the stock market during the pandemic, limits had been put in place.

During the pandemic, short selling became an issue of dispute in South Korean politics. The nation's army of ordinary investors, dubbed "ants," fought institutional investors who were hedging their bets by advocating for limits on the practice.

"Fundamentally ease the tilted playing field between institutional and retail investors," stated Kim of the FSC on Sunday.

Over the course of August and October, the Kospi experienced an almost 15% decline as a result of the US's consistently rising interest rates. It began to increase last week as data from South Korean semiconductor manufacturers Samsung Electronics and SK Hynix suggested that the global memory chip market was rebounding.

(Sources: ft.com)