With the financial authorities deciding to implement a complete ban on short selling by the first half of next year, the South Korean stock market experienced a historic surge on Nov. 6. Secondary battery companies, which had been the primary targets of short sellers, all showed a significant increase in their stock prices.
On that day, the KOSPI index closed at 2,502.37, marking a substantial increase of 134.03 points, or 5.66 percent, compared to the previous trading session. The KOSPI regained the 2,500 level for the first time in over a month since Sept. 22. Similarly, the KOSDAQ also saw a robust surge, concluding the day at 839.45, with a noteworthy increase of 57.40 points, or 7.34 percent. This represents the third-largest gain since the onset of the COVID-19 pandemic.
On the same day, individual investors perceived the government’s ban on short selling as a signal that the market had hit rock bottom, and they reacted by making net purchases, especially focusing on secondary battery stocks. This enthusiasm led to a rapid surge in the market, resulting in the activation of a temporary trading halt, known as a “sidecar,” for program buy orders on the KOSDAQ for the first time in three years and five months.
Kumyang and POSCO Future M, which are companies associated with secondary battery production, saw their stock prices surge by the maximum daily limit of ±30 percent. LG Energy Solution jumped by approximately 23 percent, while POSCO International and POSCO Holdings both saw gains of around 20 percent. Samsung SDI also recorded an increase of over 11 percent. On this day, Ecopro BM and Ecopro, the top two companies by market capitalization in the KOSDAQ market, also closed at the daily price limit high.
Earlier in the day, the Financial Services Commission and the Financial Supervisory Service announced that they would ban short selling for the constituents of the KOSPI 200 and KOSDAQ 150 indices until the end of June next year. This marks the fourth instance of a complete ban on short selling, following previous bans during the global financial crisis from Oct. 1, 2008 to May 31, 2009, the European sovereign debt crisis from Aug. 10, 2011 to Nov. 9, 2011, and the COVID-19 pandemic from March 17, 2020 to May 2, 2021.
Short selling serves a clear purpose in the capital market by helping deflate price bubbles and, at the same time, assisting in the early identification of moral hazards among some shareholders. However, domestic retail investors have expressed anger, characterizing the short selling market as a “tilted playing field,” and have demanded the financial authorities impose a complete ban on it.
In simple terms, the criticism can be summarized as, “The short selling market in South Korea is not properly regulated.” There have been accusations of “powerful foreign investors with substantial resources,” often referred to as “black-haired foreigners,” collaborating with domestic institutions and YouTube channels to intentionally spread negative signals to disrupt the market, which has been condemned as counterproductive.