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A monitor at Hana Bank’s dealing room in Jung District, Seoul, displays the KOSPI figures on Nov. 3. (Yonhap)

The South Korean government announced Sunday that it was temporarily imposing a full-scale ban on short stock selling as of Monday, with the ban to remain in place through the first half of next year.

With a short selling prohibition that targets individual investors coming on the heels of a push to incorporate Gimpo into the city of Seoul, the administration and ruling People Power Party appeared to be attempting to seize the initiative ahead of next year’s general elections.

“With the continuation of high interest rate environment and stagnant growth in the global economy, coupled with geopolitical risks such as the armed conflict between Israel and Hamas, there are growing uncertainties for the Korean economy,” the Financial Services Commission explained in a press release Sunday. “Therefore, considering the need to preemptively respond to the rising market uncertainties and address concerns about the potential weakening of the market’s fair pricing function, and with the practice of illegal naked short selling taking place in a more routine way, the FSC decided to ban short selling on all domestic stock items until the end of June next year.”

The FSC announced that it planned to work on addressing issues of unfairness related to short selling by institutions and individuals, establish measures for the prevention of naked short selling, and conduct a full-scale examination of global investment banks.

The term “short selling” refers to an investment approach that involves borrowing and selling another party’s stocks when a particular item’s value is predicted to drop. Profits are earned as the stocks are bought back later on at a lower price.

Last month, Korea’s Financial Supervisory Service found that global investment banks such as BNP Paribas and HSBC had engaged in illegal short selling in the tens of billions of won without even arranging to borrow the stocks in question. This prompted calls for a complete ban on short selling, with a focus on ordinary “ant” investors.

The administration’s decision appeared to reflect awareness of individual investor demands ahead of next year’s general election.

Restrictions on short selling were reportedly discussed by the ruling party, administration, and presidential office during a closed-door senior party-administration meeting on Sunday afternoon at the prime minister’s residence in Seoul’s Samcheong neighborhood.

“The party strongly urged the administration to address institutional problem areas cited in connection with short selling,” said Yu Eui-dong, who heads up the People Power Party’s policy committee.

By Son Hyun-soo, staff reporter

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