Short Selling Resumes After 1.5 Years... All Stocks Available for Short Selling Starting Today

# Short-Selling Ban Lifted in South Korea After 17 Months South Korea is set to fully reinstate short-selling across all stocks on October 31, lifting a ban that has been in place for one year and five months. This marks the first time in approximately five years that short-selling will be permitted for all stock categories since restrictions were introduced in March 2020. Short-selling, a practice where investors borrow shares to sell them and repurchase them later at a lower price, is often lauded for its role in identifying overvalued stocks and maintaining market efficiency. However, it has also faced criticism for amplifying downside pressure on markets and increasing volatility. Financial regulators initially banned short-selling in November 2023 to curb illegal naked short-selling activities. During the suspension period, authorities implemented significant reforms, including establishing a centralized oversight system known as the NSDC (National Short-Selling Check System) to prevent illegal short sales. Additionally, they revised rules concerning repayment periods and collateral ratios for individual investors. To address concerns over potential market volatility following the resumption, regulators announced temporary measures to mitigate risks. The authorities plan to expand the designation criteria for trading restrictions on overheated short-selling stocks for a two-month period, ending on May 31, 2024. Investor activity ahead of the resumption signals heightened anticipation. According to analysts, loan balance volumes—a key leading indicator for short-selling—saw a notable increase, rising approximately 20% for KOSPI-listed stocks and 40% for KOSDAQ stocks since financial authorities officially announced the reinstatement last month. Sectors such as secondary batteries, shipbuilding, and steel have experienced the sharpest increases, suggesting they could be primary targets for short sellers. Meanwhile, other industries, including semiconductors, automobiles, healthcare, and media, have shown considerably smaller upticks in loan balances. Lee Kyung-min, an analyst at Daishin Securities, noted that "Short-term volatility may rise for stocks with high valuations and price premiums, but the resumption of short-selling could create a favorable shift in foreign investor flows with the inflow of both long-buy and short-sell capital." Market participants will be closely watching how the short-selling reinstatement impacts South Korea’s stock market dynamics in the coming months.