Korea Exchange is planning to implement additional measures to ease the impact of short selling by reducing the duty of market makers.
It announced on March 18 that the measures are to prevent the disadvantage of market makers attributable to non-compliance of the duty in the process of short selling reduction. Specifically, the time and volume requirements and the bid-ask spread are going to be halved.
Market makers borrow stocks and set asking prices on both the buy and sell sides for smooth trading. The job is carried out mainly by local institutional investors. Earlier, on March 13, the Financial Services Commission banned short selling for six months. However, some local institutional investors were exempted from the temporary ban as market makers. Then, some investors called for the commission to include market makers in the ban as well. For example, the Korea Stock Investors Association released a statement to that effect on March 14.
Korea Exchange’s measures are to adjust the duty of market makers in response to the call and take no disciplinary action against market makers refraining from short positions. “In short, we told local institutional investors that they do not have to conduct short selling because we will make no issue of non-market making resulting from non-short selling,” Korea Exchange explained.