Short sale of shares was banned in 2008 as a means to stabilize financial market which was hit by the global financial crisis. However, as the stock market has been stabilized recently, the FSC announced that the ban on short sale of financial stocks will be lifted.
The Korean government has been strictly regulating short-selling, compared to other countries. Since October 1, 2008, covered short sales of all stocks were banned. Short sales of financial stocks have been prohibited since then, however, on June 1 2009, ban on short selling of non-financial stocks was lifted except for the period from August 10 to November 9, 2011. Then, the ban was temporarily reinstated due to concerns about the European debt crisis. On top of allowing short sale of non-financial stocks, the ban on short-selling financial stocks will be finally lifted from November 14, 2013.
Such measure is expected to increase liquidity in the stock market because transaction volume of financial stocks accounts for 12% of total market capitalization. Moreover, market transparency and efficiency will also be enhanced once the measure takes effect.
The FSC also announced a plan to require short sellers to make public notice on short-selling position on the KRX website. The sellers will be able to use the disclosed information when trading which was only available to the FSS and KRX for internal reference. Furthermore, the government plans to establish legal grounds to penalize short sellers who failed to fulfill the requirement of disclosing short-selling position.
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