Short-Selling in South Korea

What’s going on with the Short-Selling in South Korea?

[Freepik]

What is Short-Selling?

• Short-Selling is an investment method which the investors sell a stock first and buys the stocks back later.

The bus for a campaign against short sellers in Seoul, South Korea. [Bloomberg.com]

Why Banned? & Impact

• These days, in South Korea, there has been a huge increase in the amount of retail investors due to the extensive escalation in price of real estate. Therefore, the short-selling, which had never been a problem in South Korea, became the issue of broad and current interest. The particular reason for the circumstance is the rapid price change. Short-selling in South Korea has been banned due to the abuse from South Korean firms. However, the recent comments by the Korea government -removing the ban on the short-selling- made the retail investors worried about the impact of short-selling. Also, people may think that short-selling can stabilize the stock market and reduce or remove the stock price bubble. However, these common advantages of short-selling are exceptions in South Korea’s stock market.

Short-Selling in S. Korea Vs. U.S.

1. South Korea’s unlimited stock redemption period, and the United States’ limited stock redemption period.
2. South Korea’s D+2 payment system allows the naked short-selling, and the United States’ stock system does not allow the naked short-selling.
3. Stock firms, designated as market makers in Korea, are exempt from transaction taxes.
4. Short-Selling margins are not required for the South Korean firms, but, in the U.S., firms are required for paying short-selling margins.

Quick Recap

1. Short-selling is one of the investment method
2. Short-selling is banned in South Korea due to the abuse.
3. Rules of short-selling in South Korea are benefiting the stock firms.
4. Resumption of Short-Selling in South Korea have both merits and demerits.