Seoul bans short selling, boosts share buybacks
Written by Writer on Sunday, October 5th, 2008
Seoul bans short selling, boosts share buybacks
Jeong Hyeon-ji
The Korea Herald
The Korean government and financial authorities moved fast yesterday (September 30) to contain fallout from global financial market tumbles caused by the rejection of the US$700 billion banking rescue plan by US lawmakers.
The Financial Services Commission (FSC) banned the short selling of stocks and raised the daily limit on share buybacks to 10 per cent from the current 1 per cent.
The short selling ban will go into effect today (October 1), with the duration to be determined at a later date, depending on the market situation, the FSC said. The increased ceiling on share buybacks will be effective until the end of this year.
Short selling refers to the practice in which investors sell shares by borrowing them in anticipation of price falls. Short sellers can make profits by buying back shares at a lower price and then returning them. Short selling has been blamed for amplifying financial market instability.
On September 24 the FSC imposed a 10-day suspension, effective October 13, on some stocks traded on the nation’s main bourse, whose 20-session short selling turnovers took up 5 per cent or more of total transactions.
FSC Chairman Jun Kwang-woo said that the government will take measures to maintain market stability.
“We’re reinforcing market-watch to forecast the path of the financial crisis,” he told reporters at a conference in Seoul yesterday. “We’ll take all possible measures to minimise the effects of the US-led global financial crisis in the local market.”
FSC Secretary-General Lim Seung-tae said that it is unlikely that Korea’s financial market will suffer panic because of the global financial crisis.
“Even though the US House of Representatives failed to endorse the rescue plan, we expect to see a revised proposal soon,” Lim said. “Korea’s financial institutions stayed away from the US subprime mortgage debacle and the financial structures of local companies have gotten a lot more solid compared to the past.”
Prime Minister Han Seung-soo called an emergency meeting of top policymakers and central bank officials yesterday. Finance Minister Kang Man-soo said after the meeting that the government will take “necessary” measures to ease concerns over liquidity problems in the foreign currency market.
“We will pump dollar reserves into the foreign currency market if necessary,” Kang told reporters in Gwacheon. He added that the government will carry out the injection of $10 billion into the local currency swap market as previously announced.
The minister called the market’s reaction “too sensitive”.
“We are working with central banks of the US and Japan in a concerted effort to counter this global slump,” he said. “For the worst possible scenario, we also have contingency plans but there’s no need to implement those plans at the moment.”
In a related development, the FSC said it will hold a meeting with the ruling party and government officials to draw up measures to help salvage small and medium-sized firms from falling victim to the KIKO option-related losses.
BY : ASIA NEWS NETWORK
