The Financial Services Commission came up with new short selling regulations on March 10.
This month, the average daily short selling volume in the KOSPI market is 642.8 billion won, more than twice last year’s figure. In the KOSDAQ market, this month’s figure amounts to 186.3 billion won whereas last year’s is 102.7 billion won.
According to the new regulations, short selling is prohibited for two weeks from the next day when the price of a stock has fallen 20 percent or more and the value of short selling of the stock has increased by a factor of two or more one day. These regulations are applied to KOSPI stocks and the factor is 1.5 or more in the case of KOSDAQ stocks. The factor is calculated by dividing that day’s short selling value by the average value for the 40 days immediately preceding that date.
In addition, the reference factors have been halved for KOSPI and KOSDAQ stocks falling 20 percent or less. The duration of short selling prohibition applied to designated stocks has been adjusted from one to 10 trading days. The new regulations will remain effective until June 9 this year. Korea Exchange is planning to strengthen its short selling monitoring in line with the new regulations.
In the South Korean stock market, short selling was previously prohibited from Oct. 1, 2008 to May 31. 2009 and in the summer of 2011, when the sovereign credit rating of the United States was lowered to add uncertainties to the market.