Regulator to lift short-selling ban on non-financial stocks

By Kang Seung-woo

The Financial Services Commission (FSC) said Tuesday it will lift a three-month ban on short selling of non-financial stocks starting Thursday. However, the financial regulator will maintain the ban on financial shares, which are swayed more by external economic factors.

“The ban on short selling of non-financial shares will be lifted starting on Nov. 10, but the ban on financial stocks will not be lifted for the present time,’’ Chin Woong-seob, director-general of the FSC’s capital market bureau, said.

Short selling refers to the practice of selling borrowed shares in the hopes of repurchasing them at a lower price. Korean government officials imposed a three-month suspension on the short selling of stocks in August, after the eurozone debt crisis and U.S. credit downgrade left markets decimated.

FSC observers that the market is now stable enough, from the KOSPI recovering from closing at 1,801 on Aug. 9 to 1,919 on Nov. 7. However, lingering doubts on European nations Greece and Italy, as well as the massive amount of European debt expected to mature in the earlier part of 2012, dissuaded authorities here from lifting the short selling ban on financial stocks.

Foreigners’ short selling quadrupled to around a daily average of 400 billion won (about $357 million) in early August after the first-ever credit downgrade of U.S. pummeled financial markets.

Greece, Italy, France, Spain and Belgium were the other nations that restricted short selling in August, but only Greece remains banning the short selling of all local stocks.