South Korea’s financial regulators may temporarily ban short-selling to prevent abnormal crash in the stock market and excessive fear about the virus impact on the economy.

According to sources on Monday, the Financial Services Commission, the Financial Supervisory Service and Korea Exchange held a meeting to discuss an array of market defense measures, including a temporary ban on short selling.

Excessive depreciation of the Korean equities despite the sound fundamentals in Korean corporations and macroeconomy requires phased actions including temporary ban on short-selling, said an official from the financial authority.

According Korea Exchange data, the volume of daily short selling on the Kospi and Kosdaq markets amounted to 777.9 billion won Feb. 24-28, up 43 percent from 540.3 billion won in January, as the coronavirus infections soared across the country.

Short selling is a trading strategy that speculates on the decline in a stock or other securities price. It has often been blamed for fueling panicky selloff.

The scheme is usually led by foreign investors. Retail investors’ short selling came to 103.5 trillion won last year, accounting for a mere 1.1 percent on the Kospi and Kosdaq markets, whereas foreign investors took 62.8 percent with 65 trillion won, and institutional investors 36.1 percent with 37.3 trillion won.

Short selling was temporarily banned in 2008 amid Wall Street-triggered meltdown and 2011 amid fiscal crisis in the euro zone. The ban went on for eight months till May 31 2009 and three months from August 10 in 2011.

Authorities are also studying the option of restricting short sale to specific stocks as in Hong Kong.

By Jin Young-tae and Minu Kim

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