2024

when

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 Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our&nbsp;<a href="https://tokenist.com/terms-of-service/" style="text-decoration:underline;color:#3c7b7b" target="_blank" rel="noreferrer noopener" class="deco-link">website policy</a>&nbsp;prior to making financial decisions.
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<p class="has-drop-cap">South Korea’s financial watchdog <a aria-label="affirmed (opens in a new tab)" href="https://www.koreatimes.co.kr/www/biz/2024/12/602_388091.html" target="_blank" rel="noreferrer noopener nofollow" class="deco-link">affirmed</a> its commitment to lift the short-selling ban in March next year despite market concerns over political uncertainties and implementation challenges.</p> 
<p>Financial Supervisory Service chief Lee Bok-hyun’s statements to global investors this week come three months after regulators <a aria-label="extended the ban (opens in a new tab)" href="https://koreapro.org/2024/09/south-koreas-extended-short-selling-ban-poses-risk-to-market-liquidity" target="_blank" rel="noreferrer noopener nofollow" class="deco-link">extended the ban</a> through March 2025, a decision that surprised many market observers when it was announced in September. Initially implemented in November 2023 in response to illegal <a href="https://tokenist.com/investing/naked-short/" rel="dofollow" class="deco-link">naked short-selling cases by institutional investors</a>, the ban has significantly impacted market dynamics and drawn criticism from international investors.</p> 
<p>As South Korea works to implement its new monitoring system before the planned reopening, questions remain about the technical and political feasibility of meeting the March deadline.</p> 
<h3 id="background-of-south-korea-s-short-selling-ban">Background of South Korea’s Short-Selling Ban</h3> 
<p>South Korea’s current short-selling ban, which began in November 2023 following cases of illegal naked short-selling, was extended by the Financial Services Commission in September 2024 to run through March 31, 2025.<br><br>The extension came as regulators needed additional time to implement a new monitoring system. However, the decision has significantly impacted market dynamics, with foreign institutional investor participation in the KOSPI declining from 35% in 2021 to 27%.</p> 
<p>The extended restriction has particularly affected market liquidity for small and medium-sized enterprises while disrupting traditional price discovery mechanisms. Market participants note that the continued absence of short selling has limited institutional investors’ ability to manage portfolio risks and may contribute to artificial price distortions in certain sectors.</p> 
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<h3 id="what-is-naked-short-selling">What is Naked Short Selling?</h3> 
<p>Naked short selling is a controversial practice in the financial markets, distinguished by its deviation from the <a href="https://tokenist.com/investing/short-selling/" rel="dofollow" class="deco-link">traditional short-selling process</a>. <br><br>In a typical short sale, an investor borrows shares before selling them to repurchase them later at a lower price. However, in naked short selling, the investor sells shares without first borrowing them or even ensuring they can be borrowed. This approach bypasses the usual checks and balances of the market, raising concerns about its implications for market fairness and stability.</p> 
<p>One of the primary criticisms of naked short selling is its potential to facilitate <a href="https://tokenist.com/investing/market-manipulation/" rel="dofollow" class="deco-link">market manipulation</a>. Allowing traders to sell shares they do not own opens the door to artificial price movements. Such activity can unfairly drive down a stock’s price, not due to genuine market forces but through the sheer volume of fictitious share sales. <br><br>This can create a misleading picture of a company’s value, affecting not only the stock’s price but also investor confidence and the company’s ability to raise capital. Furthermore, the practice can exacerbate market volatility, as it enables many shares to be sold without the natural constraint of having to find shares to borrow first.</p> 
<p>Regulators have expressed significant concerns about naked short selling due to its potential to disrupt market integrity. One of the risks associated with this practice is the failure to deliver shares, meaning the seller does not provide the shares sold by the settlement date. <br><br>This failure can lead to significant settlement issues, undermining the trust and smooth operation of the markets. In the US, the SEC mandates strict regulations around naked short selling, and high-performing traders use platforms like <a href="https://tradezero.com/partner/tokenist-media-llc" target="_blank" aria-label=" (opens in a new tab)" rel="noreferrer noopener nofollow" class="deco-link">TradeZero</a> that offer <a href="https://tokenist.com/how-tradezeros-single-use-locates-helps-day-traders-be-more-effective/" rel="dofollow" class="deco-link">SEC-compliant solutions</a> to ensure a smooth and worry-free trading process for short-sellers. <br><br>These regulations protect investors and ensure that stock prices reflect true supply and demand dynamics rather than skewed by manipulative trading practices.</p> 
<figure class="wp-block-image size-large">
 <a href="https://tradezero.com/partner/tokenist-media-llc" target="_blank" rel="noreferrer noopener nofollow"><img decoding="async" width="1024" height="614" src="https://tokenist.com/wp-content/uploads/2024/12/image-1024x614.png" alt="" class="wp-image-241440" srcset="https://tokenist.com/wp-content/uploads/2024/12/image-1024x614.png 1024w, https://tokenist.com/wp-content/uploads/2024/12/image-300x180.png 300w, https://tokenist.com/wp-content/uploads/2024/12/image-768x461.png 768w, https://tokenist.com/wp-content/uploads/2024/12/image-1536x922.png 1536w, https://tokenist.com/wp-content/uploads/2024/12/image-650x390.png 650w, https://tokenist.com/wp-content/uploads/2024/12/image-360x216.png 360w, https://tokenist.com/wp-content/uploads/2024/12/image.png 2000w" sizes="(max-width: 1024px) 100vw, 1024px"></a>
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  TradeZero Offers SEC-complaint features that help you short stocks effectively and in compliance with regulations in the US.
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<h3 id="south-korea-committed-to-trading-reforms-aims-to-lift-short-selling-ban-by-march-2025">South Korea Committed to Trading Reforms, Aims to Lift Short-Selling Ban By March 2025</h3> 
<p>In a significant development this week, Financial Supervisory Service chief Lee Bok-hyun met with global investors in Seoul to reaffirm the government’s commitment to lifting the ban in March 2025 as scheduled. Despite the ongoing political turbulence in the country, Lee emphasized that implementing the new “Naked Short-Selling Detecting System” remains on track.</p> 
<p>The forthcoming regulatory framework will require domestic and foreign institutional investors to demonstrate they have borrowed securities before selling and submit them to comprehensive post-trade audits. This system introduces strict compliance requirements, including mandatory internal monitoring systems and detailed reporting of all short-selling activities, including over-the-counter trades.</p> 
<p>Market participants have expressed concerns about potential downside risks, particularly given the political uncertainties and challenges in the chipmaking industry. <br><br>However, the FSS maintains that market deregulation efforts will continue, including the planned abolition of the financial investment income tax and revisions to the capital market law, signaling a broader commitment to market reforms despite the challenging political environment.</p> <iframe src="https://tokenist.substack.com/embed" width="100%" height="320" style="border:1px solid #EEE; background:white;" frameborder="0" scrolling="no"></iframe> 
<p><em>Disclaimer: The author does not hold or have a position in any securities discussed in the article.</em></p> 
<h3 id="br"><br></h3> 
<p>The post <a rel="nofollow" href="https://tokenist.com/korean-regulators-stand-firm-on-timeline-to-lift-short-selling-ban-by-2025/">Korean Regulators Stand Firm on Timeline to Lift Short-Selling Ban by 2025</a> appeared first on <a rel="nofollow" href="https://tokenist.com">Tokenist</a>.</p>

Korean Regulators Stand Firm on Timeline to Lift Short-Selling Ban by 2025

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