TLDR:
- South Korea plans to lift short-selling ban on all stocks in March 2025
- FSC aims to revise laws and implement systems to detect illegal activities
- Ban removal could help South Korea’s bid for MSCI market upgrade
- Corporate Value-up Programme encourages higher dividends to address stock undervaluation
- FSC stresses need for strong regulations to support market reforms
South Korea’s Financial Services Commission (FSC) has announced plans to lift the ban on short-selling for all stocks by the end of March 2025.
This decision marks a significant shift in the country’s financial market regulations, which have been in place since the onset of the COVID-19 pandemic in 2020.
FSC Chairman Kim Byoung-hwan, who took office in July, stated that the objective is to allow short-selling across all equities, not just a limited number of stocks. “With the goal of resuming short-selling on all stocks at the end of March next year, we are revising laws and will ensure the systems are in place,” Kim said during his first press conference since taking office.
The short-selling ban was initially implemented in March 2020 as a measure to stabilize markets during the COVID-19 pandemic. It was briefly lifted but then reinstated in November 2023 after the discovery of illegal trades by foreign banks. The ban was subsequently extended through early 2025.
Regulatory Preparations and Market Upgrade Efforts
To prepare for the lifting of the ban, the FSC is working on amending laws and developing systems to detect illicit activities. This move is seen as crucial for maintaining market integrity and preventing potential abuses once short-selling resumes.
Kim emphasized that removing the short-selling ban could help eliminate one of the barriers in South Korea’s bid for a market upgrade from MSCI Inc.
In its annual classification review, MSCI maintained South Korea’s status as an emerging market. However, Kim stressed that the country’s ultimate goal isn’t just to win such an upgrade but to improve capital market standards through initiatives like the “Corporate Value-up” programs.
Corporate Value-up Programme and Market Reforms
The Corporate Value-up Programme is an initiative aimed at enhancing market confidence by resolving stock undervaluation issues.
It encourages companies, especially larger ones, to increase dividends as a way to boost stock prices. Kim urged big companies to participate in this program, highlighting its importance in overall market reform efforts.
In addition to addressing the short-selling ban, the FSC is also reviewing measures to improve rules on how listed companies determine ratios in merger events.
This comes in the wake of the Doosan group’s decision to withdraw part of its merger plan between Doosan Bobcat Inc. and Doosan Robotics Inc., following pushback from the Financial Supervisory Service and investors.
The lifting of the short-selling ban is expected to increase market activity and potentially lead to more volatility. Short-selling, a practice where investors borrow shares to sell them in hopes of buying them back at a lower price, can provide liquidity and price discovery in markets.
However, it has also been a controversial practice, especially during times of market stress.
The FSC’s efforts to tighten laws against malpractices aim to ensure fair trading once short-selling resumes. Investors and market participants will need to closely monitor how these changes impact stock prices and overall market behavior.
On a broader scale, South Korea’s financial regulators are keeping a close eye on global economic factors, particularly the U.S. Federal Reserve’s interest rate decisions.
The FSC has underlined the need for robust risk management in both finance and real estate sectors, recognizing the interconnected nature of global markets.
