Short and Sour: South Korea's Stock Market Maneuvers Raise Eyebrows
- 6 tháng trước
The recent prohibition on short-selling of stocks in South Korea has been positively received by the nation's active group of retail investors, who argue that this practice unfairly benefits institutional investors. However, analysts have criticized this move, viewing it as a strategic maneuver by the government to secure support for the next national legislative elections in the following year.
On November 5th, the Financial Services Commission (FSC), a market regulator, made a significant announcement during an unscheduled Sunday briefing. It was revealed that there would be a prohibition on short-selling in the Seoul stock markets, with the exception of market makers and liquidity providers. This prohibition would be effective from the following day until the conclusion of June 2024, which corresponds to a duration of approximately eight months.
The practice of short-selling involves the sale of borrowed stocks from a broker with the expectation that their value will decrease in exchange for a commission. The borrower engages in the practice of selling the shares prior to their anticipated drop, thereafter repurchasing them at a reduced price in order to fulfill their obligation to return the shares to the lender. This transaction allows the borrower to retain the surplus amount resulting from the difference in prices. While the method carries inherent risks for the borrower, it is perceived as a means for investors to strategically identify expensive equities and uphold the overall stability of the market.
However, the decision has been welcomed with approval from South Korea's ordinary investors, who have expressed their discontent, at times vehemently, with institutional short-selling practices that they believe lead to the suppression of share prices.
According to Jung Eui-jung, the head of the Korea Stockholders Alliance (KSA), a significant number of ordinary investors incurred financial losses in the stock market, resulting in negative consequences such as divorces and even suicides. The issue at hand can be classified as a societal problem. While short-selling is theoretically associated with some benefits, it is mostly institutional investors who get practical advantages from this strategy. This can be likened to the act of plundering.
On November 5th, the Financial Services Commission (FSC), a market regulator, made a significant announcement during an unscheduled Sunday briefing. It was revealed that there would be a prohibition on short-selling in the Seoul stock markets, with the exception of market makers and liquidity providers. This prohibition would be effective from the following day until the conclusion of June 2024, which corresponds to a duration of approximately eight months.
The practice of short-selling involves the sale of borrowed stocks from a broker with the expectation that their value will decrease in exchange for a commission. The borrower engages in the practice of selling the shares prior to their anticipated drop, thereafter repurchasing them at a reduced price in order to fulfill their obligation to return the shares to the lender. This transaction allows the borrower to retain the surplus amount resulting from the difference in prices. While the method carries inherent risks for the borrower, it is perceived as a means for investors to strategically identify expensive equities and uphold the overall stability of the market.
However, the decision has been welcomed with approval from South Korea's ordinary investors, who have expressed their discontent, at times vehemently, with institutional short-selling practices that they believe lead to the suppression of share prices.
According to Jung Eui-jung, the head of the Korea Stockholders Alliance (KSA), a significant number of ordinary investors incurred financial losses in the stock market, resulting in negative consequences such as divorces and even suicides. The issue at hand can be classified as a societal problem. While short-selling is theoretically associated with some benefits, it is mostly institutional investors who get practical advantages from this strategy. This can be likened to the act of plundering.