South Korea To Lift Ban On Short Selling By March 31, 2025

South Korea is set to lift its nationwide ban on short selling, allowing investors to resume the practice across all stocks starting March 31, 2025, according to the country’s top financial regulator. Financial Services Commission Chairman Kim Byoung-hwan emphasized that fully restoring short selling was crucial for the market’s credibility and noted that justifying a partial lift of the ban would be challenging.

The ban, which has been in place since November 2023, was originally imposed following significant pushback from retail investors who opposed short selling. Critics argued that the restrictions would undermine the appeal of South Korea’s $1.7 trillion equity market. However, regulators maintained that the ban was necessary to address market misconduct and enhance the transparency and fairness of stock transactions.

Kim explained that the move to lift the ban was essential to preserve South Korea’s credibility in the global financial community. Authorities, he said, have worked to improve the infrastructure necessary for detecting illegal activities such as naked short selling, a practice where stocks are sold without borrowing them first.

Short selling had been fully banned since March 2020, following a market plunge triggered by the COVID-19 pandemic. The ban was partially lifted the following year to allow short sales of stocks on the Kospi 200 and Kosdaq 150 indexes. However, the ban was reinstated in late 2023 in response to continued market instability.

During the period of restrictions, South Korean authorities conducted investigations into global banks over their short-selling activities, imposing fines on some for rule violations. Additionally, a new electronic monitoring system was implemented to detect illegal short-selling practices.

To alleviate concerns over potential market manipulation by short sellers, the Financial Services Commission plans to temporarily adjust the criteria for banning short sales on specific stocks for a single day. Despite these concerns, Kim assured that any market disruption from the resumption of short selling would likely be short-lived.