IMF official warns against S.Korea’s short-sale ban

A senior official of the International Monetary Fund (IMF) on Thursday warned against the extended ban on stock short selling in South Korea, saying that the country’s economic and financial market conditions are ripe for lifting the one-year ban.

“Since financial conditions in Korea and the functioning of the market following the COVID outbreak have now stabilized, we believe conditions are in place to move to reinstate the practice of short selling,” said Andreas Bauer, IMF’s Korean mission chief, on Jan. 28. He delivered the speech in a virtual discussion with South Korean government officials, after annual consultations.

“This will improve the functioning of markets and also help ensure that investors are more sensitive to risk,” he added.

South Korea has blocked short selling of stocks since March 16, 2020 when the global pandemic sent financial markets tumbling. The ban was extended last August for another six months until March 15 of this year.

Ahead of its resumption, calls have been growing to further extend the ban by retail investors and ruling party members.

Earlier in the day, Prime Minister Chung Sye-kyun said in a news conference that South Korea cannot continue to have the short-selling ban in place, given that all other OECD member countries have brought back the practice. He added that the regulatory Financial Services Commission is working on addressing problems in relation to short selling and revising relevant regulations.

“Despite concerns over its possible repercussions, the lifting of the short-selling ban in other countries has had negligible market impact,” said Nam Gil-nam, an economist at the Korea Capital Market Institute.

Write to Hyeong-Ju Oh and Jin-gyu Kang at ohj@hankyung.com
Yeonhee Kim edited this article.