Investing.com-- South Korea’s KOSPI index surged over 4% on Monday after the government reimposed a ban on short-selling shares in a bid to level the playing field for retail and institutional investors.The South Korean government had so far only allowed traders to short shares of companies with a large market capitalization. Short-selling is the practice of selling borrowed shares and buying them back at a lower level, while profiting from the price difference.
The Financial Services Commission , which imposed the ban, also cited global economic uncertainty- stemming from the Israel-Hamas conflict, as well as economic weakness in South Korea- as the motivators behind the ban. “Between retail investors and institutional investors, the playing field still remains not leveled, and the authorities will actively seek measures that will effectively address this problem.”
Naked short-selling is the practice of shorting shares which may not actually exist, and can lead to scenarios where the short pressure on a stock exceeds its total float. The practice is banned in South Korea and most major financial markets, especially after the 2008 crisis.