Bourse operator to look into measures to improve short-selling scheme before May enforcement

The South Korean bourse operator said Wednesday that it will check on its regulations on stock short selling, a trading technique that has been temporarily banned here since March last year, before its resumption in May.

The Financial Services Commission (FSC) banned short selling of stocks from March 16 for a six-month period, in a move to ease a market rout caused by the COVID-19 pandemic.

The temporary ban was extended twice until May 2, and short selling is set to resume on May 3.

"We will thoroughly monitor the market so that we can improve the short selling regulations and management system," the KRX said in a statement.

Brokerage experts said lifting the shorting ban could increase volatility in the local financial market.

"We are expecting a decrease in individual buying ahead of the May rollback (of the short selling ban)," Bookook Securities analyst Lee Won said.

Short selling is a trading technique in which investors sell stocks they borrowed on the belief that share prices will fall in the near future.

When the prices fall, they can buy back the stocks at lower prices, pocket the profit and return the shares to the original owner. Increased short selling typically indicates that many investors anticipate a slump in stock prices.

Retail investors have criticized short selling for fueling price declines when stock markets fall, but the trading technique has been a tool for institutional investors to hedge their exposure against sharp volatility.

Last year, retail investors bought a net 63.7 trillion won ($56.2 billion) worth of local stocks, while foreign and institutional investors sold a net 25 trillion won and 35 trillion won, respectively. (Yonhap)