The Korean Composite Stock Price Index (KOSPI) of South Korea rallied 5% on 6 November after the government reimposed a ban on short-selling with an aim to level the playing field for retail and institutional investors.
The KOSPI has jumped more than 5% to a near one-month high and is also headed for its best day in nearly four years.
Short-selling is a practice of selling borrowed shares, buying them at a lower level and profiting from the price difference.
Financial Services Commission Chairman Kim Joo-hyun said, “Amidst market turmoil, we’ve discovered massive illegal naked short-selling by global investment banks and circumstances of additional illegal activities.”
He added, “It’s a grave situation where illegal short-selling undermines fair price formation and hurts market confidence.”
The ban comes just a few weeks after the Financial Supervisory Services imposed record-high fines on two Hong Kong-based investment banks for engaging in naked short-selling.
Naked short selling is a practice that involves the shorting of shares that may not actually exist, which can lead to scenarios where the short pressure on a stock exceeds its total float.
The authorities have also informed that they will look into short-selling transactions of global banks and will introduce a special investigation team.