Democratic Party Lawmakers: "Sudden Short Selling Ban Increases Market Uncertainty"

"Focus on System Reform Instead of a Total Ban"
"Financial Authorities' Flip-Flopping Policies Fuel Market Instability"

On November 7, Democratic Party lawmakers from the National Assembly's Political Affairs Committee (Political Affairs Committee) criticized the government's short selling ban, stating, "The government and the ruling party must stop using the financial market as a bargaining chip in their political games."

Jongmin Kim, Democratic Party Whip of the National Assembly's Political Affairs Committee / Photo by Dongju Yoon doso7@

Through a statement released on the same day, the Democratic Party lawmakers on the Political Affairs Committee declared, "What is needed is not a surprise measure for the general election, but a genuine improvement of the short selling system."

The Democratic Party lawmakers expressed concern that inconsistent short selling ban policies have increased uncertainty in the domestic financial market. They explained that unstable financial administration has heightened market volatility and the risk of foreign investors withdrawing from the market.

The lawmakers stated, "While we agree with the rationale of eradicating illegal activities, we cannot support the financial authorities' flip-flopping policies," adding, "The same financial authorities who, until recently, advocated for a full resumption of short selling to join the MSCI Developed Markets Index, reversed their stance in a matter of days."

The lawmakers further pointed out, "There are now reports that foreign investors in Korea are starting to turn their attention to Taiwan and other competing markets," and added, "This is not simply because of the short selling ban, but because the government's unpredictable and sudden policy changes are turning the Korean market into one filled with uncertainty."

They emphasized, "With a national consensus forming around the need to improve the short selling system, what is needed now is substantial reform." They also pledged, "We will eradicate illegal short selling through digitalization and correct the unfair playing field that disadvantages individual investors."

Meanwhile, the Financial Services Commission announced on November 5 that it would ban short selling for eight months, from November 6, 2023, to June 28, 2024, and discuss system improvements during this period. On the first day of the full short selling ban (November 6), the KOSDAQ index surged, triggering a sidecar (a temporary halt of program trading orders). However, just one day later, the KOSDAQ index plunged again, resulting in another sidecar trigger. This year, the sidecar has been activated twice in the KOSDAQ market, which is interpreted as an expansion of market volatility due to the short selling ban.