Short Selling in Korea: Overview
Short selling in Korea is heavily regulated compared to the US market. Korea has a history of temporarily banning short selling during market crises, which is a unique characteristic of the KRX.
Types of Short Selling in Korea
1. Covered Short Selling
- Borrowing shares before selling
- Legal and allowed (with restrictions)
- Must have borrowed shares confirmed before selling
2. Naked Short Selling
- Selling shares without borrowing them first
- Illegal in Korea
- Heavy penalties for violations
Who Can Short Sell?
| Investor Type | Short Selling Allowed? |
|---|---|
| Foreign institutional investors | Yes |
| Domestic institutional investors | Yes |
| Retail investors | Yes (since 2025) |
Korea’s Short Selling Bans
Korea has banned short selling multiple times:
- 2008: Global financial crisis
- 2011: European debt crisis
- 2020: COVID-19 pandemic (banned for 1 year)
- 2023: Banned again due to naked short selling scandals
Impact on the Market
When Korea bans short selling:
- Small/mid-cap stocks often surge
- KOSDAQ typically outperforms KOSPI
- High short-interest stocks can see significant short squeezes