South Korea’s financial regulatory authorities held a press conference on Sunday to announceThe ban on short selling of stocks will be reinstated with immediate effect and will remain in place until at least June next year..
At the press conference, Kim Joo-hyun, director of the South Korean Financial Services Commission (FSC), said that based on concerns about the expansion of market volatility and illegal short-selling transactions, which may undermine market stability and the formation of fair prices, the FSC has decided to take effect from now until next year. At the end of the first half of the year, stock short selling was completely suspended. Lee Bok-hyun, head of the Korea Financial Supervisory Service, also attended today’s press conference.
About 10 global investment banks face investigations
As a background to this situation, the Korea Composite Stock Price Index (KOSPI) has continued to fall since August. In the past October, it recorded the largest decline of 7.59% during the year, almost erasing all the gains from the year to date.Batterythe chip industry continues to face headwinds, and its impact on the Korean market is particularly obvious.
At a time when the tide is falling, the performance of foreign capital has also made Korean investors quite “heartbroken”——Net selling of 2.9 trillion won of stocks in October was not only the fifth consecutive month of net selling, but also the most surge since June 2022Cash flowout.
At this juncture, news broke that “two international investment banks were under regulatory investigation for allegedly shorting 56 billion won of stocks,” triggering fierce condemnation of short-selling behavior from retail investors to members of Congress. The Korean Financial Supervisory Service announced the establishment of a special working group last week.Investigate illegal short selling by all international investment banks.
In South Korea, normal short selling consists of two steps: lending and selling. Naked shorting, as the name suggests, refers to traders operating short sales without lending securities or confirming that they can lend securities. This behavior is prohibited in South Korea.
There is also a political factor here,South Korea’s National Assembly will hold elections in April next yearsome members of the ruling party are also calling on the government to respond to the demands of investors to suspend short selling.
Kim Joo-hyun said at the press conference on Sunday,Amid market turmoil, South Korean regulators discovered large-scale illegal naked short selling and other illegal activities at international investment banks.This is a serious situation where illegal short selling undermines fair price formation and undermines market confidence.
Kim Joo-hyun, head of the Financial Supervisory Service, revealed,There are approximately 10 globalbankwill face investigation,ThesebankAccounted for most of the short-selling transactions in South Korea.
Seek to increase penalties for illegal naked shorting
In fact, short selling has always been a rather negative topic for the Korean market, especially when the market is volatile.
South Korea’s financial regulator issued an order to completely ban short selling in March 2020.And in May 2021, short selling orders involving KOSPI 200 Index and KOSDAQ 150 Index constituent stocks were lifted.. Therefore, today’s adjustment only involves the more than 300 stocks with the largest market share.
Kim Joo-hyun also said on Sunday that in the coming months,South Korea will seek to “fundamentally improve” the market environment and create a fairer market for retail investors. Authorities will also continue to investigate short-selling transactions by international investment banks and seek to impose harsher penalties on illegal short-selling activities.
It is worth mentioning that in March this year, South Korean financial regulators issued fines totaling 6 billion won (approximately 33 million yuan) to UBS and ESK. This was also the first naked short-shoring exercise in accordance with the revised rules of South Korea’s Capital Market Act. fine.Previously, short-selling behavior in South Korea was generally punished with lighter penalties. The new rules will raise the upper limit of fines to “up to 5 times the illegal gains.”When illegal naked short trading was disclosed in October, South Korean regulators said the scale of fines was expected to hit a record.
The “short-selling pause” also has negative consequences
Although a complete ban on short selling can calm the anger of retail investors in the short term, it also has side effects in the long term.
South Korea has been working hard over the years to move the country’s index from MSCI’s “emerging market list” to the “developed country list.” During the past two years of evaluation,MSCI has pointed out that the Korean market has accessibility issues for international investors.the short-selling system is also one of them.
Short selling accounts for a very small share of South Korea’s nearly $1.7 trillion stock market – about 0.6% of KOSPI’s market capitalization and 1.6% of Kosdaq’s, according to exchange data.
Capital markets research agency SmartkarmaanalystBrian Freitas interpreted that the short-selling ban will further damage South Korea’s opportunities to shift from emerging markets to developed markets. Freitas also expected,The parts of the stock market favored by retail investors will form a bubble because short selling can no longer act as a brake on ridiculous valuations.
Short selling of stocks is prohibited!South Korea takes action to “beat up” short sellers
just! South Korea announces: ban on short selling in the stock market!Enlarge the move
(Source of article: Financial Associated Press)
Source of article: Financial Associated Press
Original title: The target is pointed at a large number of illegal naked shorts by foreign investors!South Korea’s financial regulator announces suspension of stock short selling
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