Short sales periodically banned in South Korea, Spain and Italy

How to limit the panic sale on financial markets that are extremely responsive to coronavirus threat? The South Korean government is prohibiting short selling and co-financing of pension funds that would invest in overpriced shares on the Seoul Stock Exchange.

On Friday, for the first time since 2011, trading on the main market of the South Korean stock exchange was suspended. This was done when the index had already dropped by 8 percent. But that's not all, because Seoul also wants to limit playing short positions. The changes will come into force when the stocks fall by more than 5%. per day or short selling will be three times higher than the average for the previous 40-day period. If one of these scenarios turns out to be true, "anti-speculative" solutions will be introduced that will eliminate the possibility of short selling for the next 10 days.

After the information about the introduction of restrictions, the sum of short positions on the South Korean stock exchange index immediately decreased, although it may also be affected by the real market assessment, which - according to some investors and speculators - assumes that the dynamics of declines is exhausting and a rebound is possible . Especially that there are many indications that the coronavirus epidemic in China has been brought under control (although it is developing rapidly in Europe).

First suspension of listing

During Friday's quotations, when the stock market in South Korea slid 8 percent, Kospi recorded the first since November 12.11.2011, 20 (the day after the terrorist attack on the World Trade Center in New York), a XNUMX-minute break in trade.

KOSPI 200 index chart, interval D1. Source: xNUMX XTB xStation

It was also immediately checked that the decline was caused by foreign investors. They took short positions worth 753,1 billion won, which is 78,6 percent higher. compared to the previous day. Individual customers were responsible for short sales of just 8,6 billion won.

Of course, Koreans are aware of the fact that short selling is a completely legal activity, which also earns their native financial institutions, but at the same time remind you that the balance on the market can not be so disturbed, because it suffers the most individual investors who as a rule, they simply buy shares, hoping to increase their value in the short or long term. Although retail investors also took short positions on the Korean stock exchange last week, they accounted for only 1,1 percent. volume. For 62,8 percent Foreigners responded, and 37,3 percent South Korean financial institutions.

Pension funds are to buy shares

The ban on "anti-speculative" practices will remain in force until further notice. The last time this happened was during the crisis caused by the Al-Qaeda attack on the WTC in 2011, and previously similar restrictions were in place during the 2008 financial meltdown.

The market is also to be saved by the National Pension Fund, which is already accumulating assets that allow it to buy additional packages of heavily discounted shares. There are also plans to change regulations quickly, which currently limit movements in share prices by 30%. a day because Koreans want to make up for the losses quickly.

Stabilization measures in the US and more

He also took a quick reaction Bank of Englandwhich lowered interest rates this week. The main interest rate was reduced from 0,75 to 0,25 percent, which is the lowest level in history. There will also be more money for loans to be available to entrepreneurs.

American Federal Reserve she also reacted. The Fed has intervened the most since 2008, supporting the market with USD 500 billion on Thursday. The second tranche in the same amount is to be launched on Friday.

European Central Bank Instead, he launched the LTRO program, which assumes greater support  low-interest loans to banks. It will also increase the amount for asset purchases by EUR 120 billion by the end of the year.

154 companies from Italy and Spain without "short sale" [Update 12:30]

Spain and Italy are joining the group of countries that temporarily suspend short selling. In total, 154 companies (69 from Spain, 85 from Italy) cannot be traded for short periods in these countries. In addition, the British regulator of financial markets also plans to ban trading on selected Spanish and Italian shares that are listed on the London Stock Exchange. Yesterday's session was one of the worst in the history of European stock exchanges.