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  • Writer's pictureDegen Mag

The Economic Intricacy of South Korea's Short-Selling Ban



South Korea just dropped breaking news that left investors in quite a tight spot, by implementing a surprising ban on short-selling stocks. This abrupt move from the Korean government has its citizens in awe, as they repeated the ban of short-sells on stock back in May of 2021. This time, the ban will remain through June of 2024 as the government is promoting equitable trading practices.


Financial Services Commission Chairman Kim Joo-hyun told a news briefing that, "Amid continued uncertainty in financial markets, major foreign investment banks have been engaged as a matter of practice in unfair trades ... and we determined that it would be impossible to maintain fair trading discipline"

Why the ban, you ask? The FSC Chairman stated that this is tied to the government's ongoing quest for market stability. Amidst the global economic whirlwind, heightened market volatility, and civil unrest. Authorities have conjured up concerns about the arcane art of short-selling, especially naked short-selling and monopolistic companies buying back shorted stocks.


South Korean investors, too, might breathe a sigh of relief, as a huge amount of short-selling and insider trading is known to arouse unnatural market movements. In hindsight, the FSC is determined to “level the playing field” and help retail investors get back into the market. But detractors argue that by silencing short-sellers, South Korea risks transparency and stifles the elusive art of price discovery. This could cast a shadow on the efficacy of its stock market. A lack of short-selling might also leave investors distraught because of declining markets, making managing your risk a whole lot harder.


While it may cast a protective shield on its domestic stocks, it raises global questions about the far-reaching repercussions. On the world stage, traders and investors might find themselves lost in uncertainty. Foreign investors, tempted by the allure of South Korean stocks, may find themselves in an unusual stance, trying to navigate through the South Korean market. Their conjuring of risk mitigation strategies could be spellbound, possibly affecting their investment choices and portfolio diversification.


South Korea's ban on short-selling stocks is a daring act, as the FSC’s intentions say its for greater good for Koreans, only time will tell if this act will be designed to maintain market equilibrium in an era of scarcity. While it may offer momentary relief to the country's businesses and investors, the consequences remain hidden in a cloud of uncertainty. As the world watches South Korea's act unfold from the sidelines, it's becoming more evident that the financial global community is under stress, maybe considering this for themselves. This also serves as a keen reminder of the intricate oneness we share financially worldwide.


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