, rely on active trading to maintain stable stock valuations.<\/span><\/p>\nWith short sellers removed from the market, price discovery becomes distorted, potentially leading to inflated stock prices for some firms.<\/span><\/p>\nShort selling plays an essential role in correcting overvalued stock prices, and its absence creates an environment where stock valuations may become disconnected from underlying fundamentals.<\/span><\/p>\nWithout the corrective mechanism that short selling provides to counterbalance bullish market sentiment, SMEs could face a bubble-like scenario where stock prices are artificially high, only to experience sharp corrections when short selling is eventually reintroduced.<\/span><\/p>\nThe liquidity constraints are also affecting the ability of SMEs to raise capital. In an environment where trading volume is reduced, smaller companies tend to struggle to attract investment, as investors shy away from markets with low liquidity.<\/span><\/p>\nThe inability to raise funds through stock issuances limits these firms\u2019 capacity for growth, stifling their expansion plans. As a result, SMEs may continue to face financial difficulties, further exacerbating the economic challenges posed by the initial ban.<\/span><\/p>\nMARCH 2025 AND BEYOND<\/b><\/p>\n
The risks posed by the FSC\u2019s regulatory approach will likely persist unless the Naked Short-Selling Detecting System is implemented effectively. While the FSC has promised that the system will be operational by March, the technical and logistical challenges involved in building a comprehensive monitoring framework are likely significant.<\/span><\/p>\nIf the FSC fails to meet this deadline or if the system is not as effective as anticipated, the government will likely extend the short-selling ban further, leading to even greater uncertainty for businesses and investors.<\/span><\/p>\nOn the positive side, if the system is successfully implemented, it could restore confidence in South Korea\u2019s markets. A more transparent regulatory framework, combined with stricter enforcement of short-selling rules, may attract long-term institutional investors who value market stability.<\/span><\/p>\nHowever, much will depend on how well the FSC balances the need for regulation with the need to maintain market efficiency. The new system must not only prevent illegal practices but also allow for the smooth functioning of legitimate short-selling activities.<\/span><\/p>\nThe broader economic impact of the ban will also need to be considered. South Korea\u2019s technology and manufacturing sectors, which rely on foreign investment for growth, could see reduced inflows if foreign investors continue to view the market as unpredictable. Slower capital flows will likely translate into slower economic growth, limiting job creation and stifling innovation.<\/span><\/p>\nWhile the Naked Short-Selling Detecting System may eventually address illegal practices and restore confidence, the extended timeline and regulatory uncertainty could have long-lasting consequences.<\/span><\/p>\nReduced liquidity, capital flight and the potential for market volatility pose significant risks for domestic and international investors. As South Korea moves forward, the success of its regulatory reforms will depend on the FSC\u2019s ability to implement its system effectively and balance the competing demands of investor protection and market efficiency.<\/span><\/p>\nEdited by Alannah Hill<\/span><\/i><\/p>\nBusiness & Economy<\/span><\/a>Technology & Cyber<\/span><\/a><\/div>","protected":false},"excerpt":{"rendered":"South Korea\u2019s financial watchdog announced on Friday that it would extend the country\u2019s short-selling ban until March 31, 2025 to allow time for the implementation of a new system to detect illegal naked short selling.\u00a0 While the Financial Services Commission (FSC) framed this extension as necessary to protect retail investors and restore market stability, the […]<\/p>\n","protected":false},"author":10407,"featured_media":2206622,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[21],"tags":[24,29],"class_list":["post-2206621","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-business-economy","tag-technology-cyber"],"yoast_head":"\n
South Korea\u2019s extended short-selling ban poses risk to market liquidity - KOREA PRO<\/title>\n \n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n \n \n\t \n\t \n\t \n