Individual investors in South Korea are rushing to create a fallback position to protect their portfolios after the end of the world's longest ban on short-selling stocks ended Monday, and it had.
South Korea's financial regulator said the country will impose more rigid actions against illicit activities involving stock short selling as it allowed a partial resumption of short selling following a 14-month ban.
The Financial Services Commission allowed short selling on 351 stocks listed on the benchmark KOSPI 200 and KOSDAQ 150, the Yonhap News Agency reported Monday.
During the past year, retail investors who propelled record gains in the Korean stock market have feared the consequences from short selling and have asked regulators to implement a permanent ban.
"The government will actively respond to market-disturbing activities, including illegal naked short selling, by imposing punishment that can be applied to the fullest extent of the law," Yonhap quoted FSC Vice Chairman Doh Kyu-sang as saying.
Short selling is an investment or trading strategy that speculates on the fall in the price of a stock or other security's price. In this strategy, a position is opened by borrowing stock shares or other asset an investor believes will drop in value.
After choppy trading, the KOSPI closed at 3,127.21 points, down 20.65 points from the previous session. The total value of short selling transactions stood at 1.09 trillion won (US$971 million) on the main and secondary stock markets Monday, bourse operator Korea Exchange said.
South Korea is the last major market that bans short selling and has allowed the practice again after the economy improved to pre-pandemic levels last quarter. Short selling by foreigners accounted for 87 percent of the country's total with 956 billion won.
"Short-selling issues are affecting investor sentiment," Seo Sang-Young, a market strategist at Mirae Asset Securities, said in remarks quoted by Bloomberg.