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Photo= Korea Exchange |
[Alpha Biz= Paul Lee] Short selling, which has been banned for the past 1 year and 5 months, will be fully resumed on March 31. This marks the first time since March 2020 that short selling will be allowed on all stocks.
Short selling is an investment technique where an investor borrows stocks from a securities firm and sells them with the expectation that the stock price will fall. The investor can then buy back the stock at a lower price, return the shares, and pocket the difference as profit.
Typically, the resumption of short selling leads to overvalued stocks correcting to their fair value, and increased trading volumes, which enhances market liquidity. Institutional investors also gain a hedging tool for managing risk. However, if short selling positions become excessively concentrated on specific stocks, it could lead to sharp declines in stock prices, increasing market instability.
Earlier, financial authorities fully banned short selling from November 2023 to eliminate illegal naked short selling. During this period, a central monitoring system (NSDC) was established to prevent illegal practices, and adjustments were made to repayment periods and collateral ratios for investors.
Additionally, with concerns that the resumption of short selling might lead to increased volatility in certain stocks, the authorities have decided to temporarily expand the designation of short-selling overheating stocks until May 31 to manage the situation more gradually.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
