South Korea dramatically restricts short selling
South Korea sharply tightened its rules for selling stocks by three months on Tuesday, a day after its main stock board saw a record churn of foreign investors as the coronavirus epidemic ravages the country’s economy..
Beginning March 11, stocks with a sudden and abnormal increase in short selling will be barred from further short selling for 10 days. The current rule requires the suspension of short selling for only one day.
The rules will also apply to a wider range of stocks, according to the Financial Services Commission..
Stocks in the main KOSPI index that are down 5% or more and in which daily short selling increases three or more times the average of the previous 40 days will be subject to the new rule. Currently, the rule only applies if the daily short sell amount increases 6 times or more..
Preliminary data from the Korea Exchange showed Seoul shares fell more than 4% on Monday, as foreigners sold a record 1.331 trillion won ($ 1.1 billion) in shares during the main session..
The planned ban on short selling helped the market to recover on Tuesday, KOSPI up 0.4%.
«Short selling of shares increased this month, the commission said. – We will strictly and promptly take appropriate measures in accordance with contingency plans prepared in advance when we monitor the markets».
Vice Finance Minister Kim Yong Bem also pledged to take additional measures to stabilize the market to curb speculation if necessary, according to a statement released after the Seoul meeting..
Kim said the government will do its best to contain market volatility and will take action if herding behavior occurs in the foreign exchange market..
Asia’s fourth largest economy, with over 7,500 new coronavirus cases with the second highest number of cases outside China, has developed an additional budget of 11.7 trillion won ($ 9.7 billion) to counter the impact of the outbreak.
Indonesia also suspended all short-selling shares last week amid capital outflows linked to the coronavirus outbreak..