The Financial Services Commission said Tuesday that it has decided to bar investors from short selling on the local stock market over the next three months.
Amid the instability of the Korea Exchange in the wake of the European debt crisis, the regulator reinstated the ban for the first time in more than two years since it was lifted in the first half of 2009.
Short selling refers to the practice of investors selling stocks borrowed from mostly institutional investors, betting on a price drop.
Short sellers realize capital gains by buying back shares at a lower price and then returning them to the original owners. If the market falls, they generate profits but if the market goes up, they incur losses.
The ban comes after a ruling party lawmaker urged FSC Chairman Kim Seok-dong to adopt the policy earlier in the day.
In addition, the FSC said it would ease regulations on enterprises’ buying of their own shares for three months until November 9.
