South Korea Extends Ban on Short Sales After GameStop

South Korean private investors pointed to the US GameStop saga to pressure local regulators to extend the ban on short selling in the country. At least for the time being they succeeded.

Then GameStop happened.

In January, retail investors in the US joined forces on Reddit to bet in favor of stocks (like that of US video game company GameStop) that certain Wall Street hedge funds would sell short. GameStop’s share price skyrocketed, forcing Wall Street investors to cover their losses by buying the shares, which further boosted the price.

The US retailers were soon joined by keen small investors from all over the world. In South Korea, where retail investors dominate stock trading (70% of the market), traders drove around in a battle bus covered in anti-short selling slogans. Around 30,000 Korean traders reportedly gathered on an online forum to raise the prices of stocks like Celltrion, which overseas short sellers often target. Some local politicians rallied behind private investors who called for the ban to be extended.

On Wednesday, Eun Sung-soo, chairman of the South Korean Financial Services Commission, held a press conference and announced that the ban would not only be extended but only partially lifted after May 2. The ban continues to apply to over 2,000 shares.

“The partial resumption is intended to minimize the impact on markets as these stocks have large market caps and liquidity, so resuming short selling would have limited impact on stock prices,” the press release said.

While local investors may have welcomed the temporary extension, this view is not shared by institutions around the world. On January 27, the International Monetary Fund (IMF) asked the country to lift the ban after markets stabilized.

According to local media, the Financial Times Stock Exchange (FTSE) reportedly sent a letter to regulators in South Korea on Wednesday warning them that they would be classified as an “industrialized” country in the FTSE Equity Country Classification Index Revoke a ban stay where you are. To qualify as an industrialized country, its stock market should allow short selling.

In 2020, the Korean stock exchange was among the top 20 in the world in terms of market capitalization.