South Korea to Extend Stock Short-Selling Ban Until May 2

(Bloomberg) -- South Korea bowed to pressure from its increasingly dominant retail investors and extended its pandemic-imposed ban on short-selling until May 2.

The ban, which had been scheduled to expire on March 15 -- a year after it was put on place -- will be lifted on May 3 for stocks on the benchmark Kospi 200 Index and the small-cap Kosdaq 150, the Financial Services Commission said in a statement on Wednesday.

The extended short-selling ban on the country’s high-flying stocks will make Korea the largest market to maintain these pandemic-fueled restrictions on selling borrowed stock, which have frustrated institutional investors.

At one stage last year, a slew of European markets, including France and Italy, had also banned short-selling to tame markets hit by the spreading Covid-19 virus. Indonesia, the only other major market that put in such a ban, is lifting its prohibitions this month.

Retail traders have come to dominate Korea’s stock market in the past year, making up the bulk as institutional investors fled in early 2020. Many have been vociferous opponents of short-selling, a key hedging tool for institutions but a practice day traders in the country have decried as putting them at a disadvantage as well as leading to stock declines.

Except the 350 stocks that can be shorted after May 2, a total of 2,037 other stocks in Korea will be still banned for short selling, Eun Sung-Soo, chairman of the FSC, said at a briefing Wednesday afternoon.

“We will see whether the new system on short selling would work and market participants feel comfortable with that, and then decide whether to lift the ban” on the 2,037 stocks,” Eun said.

With two major by-elections slated for April, Korean lawmakers are taking note of protests by retail investors against short-selling, and also working on reforms so individuals face less restrictions than they did before the strategy was banned.

Korea’s stock market was the world’s top performer after that of Nigeria’s last year and continues to boom in 2021.

©2021 Bloomberg L.P.