South Korea Finance Chief Defends Short-Sell Ban Ahead of Elections

Facts

• South Korean finance minister Choo Kyung-ho claimed the government's decision to ban short-selling, implemented Sunday, was 'rightfully done,' after the country's benchmark Kospi stock market index fell 2.3% on Tuesday.¹
• Short selling — the sale of borrowed shares to repurchase them at a lower price and pocket the difference — will remain prohibited in South Korea until the end of June 2024.²
• During a parliamentary finance committee meeting, Choo said some investors and lawmakers were 'worried' about short-selling, although he also acknowledged 'concerns' over the ban.³
• Short-selling was first banned ahead of the legislative polls in April this year. The government claimed the policy was designed to create a 'level playing field' for retail and institutional investors.⁴
• Tuesday's 2.3% decrease in the Kospi followed its largest-ever daily gain of 5.66% a day previously. The South Korean won ended Tuesday at 1,307.90 against the US dollar, down 10.60 from its previous close.⁵
• South Korea also banned short-selling in 2008, 2011, and 2020. Earlier this year, the government said it would consider resuming the practice if it helped the country get an upgrade to developed-market status in MSCI Inc.’s indices.⁶

Sources: ¹Reuters, ²CNBC, ³Koreatimes, ⁴Saltwire, ⁵Korea Herald and ⁶Yahoo finance.

Narratives

• Pro-establishment narrative, as provided by Arirang. South Korea's ban follows a period of naked short-selling — the practice of selling short before investors even possess the shares — roiling the market and causing widespread dissatisfaction among investors. This policy gives the state time to crack down on such activities and imposes harsher punishment on global investment banks who take advantage of regulation that is badly in need of reform.
• Establishment-critical narrative, as provided by Nikkei asia. While some banks misuse short-selling, banning the practice undermines South Korea's reputation as a desirable market for foreign investment. Its government has done little to become a private sector-led economy — as previously pledged — and has seen stagnation compared to the likes of Japan. A ban like this is not the solution to the country's market problems.