Throughout trading on Monday, November 6, South Korean stocks experienced a sharp rise in price. This increase is best exemplified by the Korea Composite Stock Price Index (KOSPI) – a market index that tracks all common stocks on the country’s market – which ended the day 5.66% in the green.
The sharpest rise was seen on KOSDAQ 150, an index that places an emphasis on South Korea’s technology stocks. The index experienced a decisive rally throughout the trading day and rose by 12.12% by the market’s close.
The price movements on November 6 brought an abrupt end to a months-long downtrend that was seen on the South Korean market since August 2023. The rally was kickstarted primarily by the Financial Services Commission’s (FSC) decision to ban short selling, which was announced on November 5.
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South Korea reintroduced the ban on short-selling
The new short-selling ban is set to last at least until June 2024, and the Commission cited the global financial instability throughout 2023 as one of the main reasons for the decision. The FSC also expressed its belief that the measures taken so far to regulate short selling have been insufficient and stated it would take the time to reinforce its framework.
It also revealed that it had detected instances of naked short selling – especially from foreign banks and other investors – and promised it should crack down on the practice. Furthermore, the Commission stated that it would work to ensure more proactive measures for the prevention of naked short-selling are in place by the time the ban expires.
Finally, the FSC also explained that it would attempt to level the playing field between institutional and retail investors throughout the time the ban is in effect. The previous ban on short selling – imposed with similar justification during the COVID-19 pandemic – was lifted in 2021.
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