South Korea Stocks surged more than 5% for best session since March of 22 after Short Selling banned Yes You heard me correctly. Short Selling has been banned in South Korean markets and on the news and really shorts covering the Old Stock Market at least for them went up a crazy 5% Here's what you need to know: Short Selling Band Sp's biggest rally in Korean stocks since 2020 and at first that might like okay, cool people. can't bet against it. the market goes up.

but the situation at least to me I found it to be a bit more interesting cuz it's a lot more nuanced and there's a lot of interesting thoughts and opinions on both sides. So I just want to share with you everything that truly is going down. South Korean Stock Swar After the country reimposed a full ban on short selling, a controversial move that Regulators says was needed to stop the illegal use of trading tactic deployed regularly by hedge funds and other investors around the world. So they're not talking about straight up short selling like legal legitimate.

You borrow the shares, you bet against it, You give them back. they're actually targeting naked Short Selling And to Target that they got rid of the whole practice for the time being to isolate what's going on in an illegal, illicit manner. So they've done this before and actually in the US it's happened before. Back in 2008, there was a temporary ban.

Since then, it's been reinstituted. The nearly 8-month ban may help appease retail investors who have complained about the impact of shorting the selling of borrowed shares by institutional investors ahead of elections in April Several Market Watchers said. However, it could deter participation by Foreign funds in the 1.7 trillion Equity market and complicate Korea's bid to seek a developed Market status in the Msci indexes. So the fact that they're doing this, it seems like it's pretty political.

You have a lot of retail traders who are campaigning for this exact thing to happen. Their political season is coming up, so it seems like you might be doing it to Garner some votes. It's a temporary V This is not permanent and even though retail likes it, the general World Market is not going to be the biggest fan because markets are allegedly allowing you to go long or short do whatever you want. It's not a one-sided thing, so adding a little bit of complexity, the Cosby ended the day up 5.7% to cap its biggest gain since March of 2020 amid surge in trading volumes.

Overseas investors were big buyers on a net basis, indicating the funds were covering short positions. So the fact that it's banned people were like, okay, cool, we're going to get out. so the the rise in the Market's not that surprising. It's going to be a one-time thing because the people who are short be like okay, we're not going to be short anymore.

So to get out of a short position, they created it by selling it so to cover it, they have to buy, Not the biggest surprise that we in the short basis are seeing quite a bit of bullishness. This policy reversal with respect to Short Selling is unwarranted. At the current time, many people view it as a political move aimed at next year's general election. Adding that the Korean markets tends to heavily influenced by retail investors.

Retail investors don't want it to a shorting to be even possible. and obviously on that news, there is a decision in the political Arena to get rid of it, most likely attempting to Garner a couple more votes. Lee The Governor of Financial Supervisory Service refuted The View that the ban was politically motivated, as any politician would do, Adding that the suspension was necessary to protect retail investors and improve the short selling mechanism. The ban was inevitable to introduce an advanced Short Selling system.

What they're finding, or what they believe they have found, is that there is evidence of illegal, elicit naked short selling as in shorting without actually getting the proper loan. And that's what they're arguing they're getting rid of. And if that is truly what they're attempting to do, or, uh, an issue that they're trying to fix, well, of course I'm going to support that because it's an illegal, illicit practice that shouldn't be going on anyway. The latest ban is unusual as authorities are comprehensively prohibiting short selling at a time when there is no major external risk.

Uh, according to people within the South Korean market like in terms of the regulator, so there's a lot of the he said. she said there's a lot of opinions on it. Um I just want to present the story from both sides. While Regulators argue that naked Short Selling inhibits fair price formation and hurts confidence.

Some observers say broad outright bands make the market less transparent and therefore less attractive. Some also say that the restrictions may keep the market from being upgraded to the Msci, which would be a problem for them in terms of more legitimacy. It does compromise their status and certainly would hold them back from achieving developed Market status. Given that there's an immediate ban, there will be an initial sharp move higher in stock prices of companies that had some short selling the Impact May limit given low levels of short positions in the overall market.

And that's the interesting thing is they're doing it when the short interest itself is very low within the market. Um, So couple factors to consider: There is a possibility that International investors may lose trust and the opportunity in the Korean market without the ability for investors to express a view that markets and individual stocks are quote unquote, mispriced. To the upside, stock markets lose longer term credibility on the world stage. So like many things in life, this is a trade-off.

It seems like on the whole if if we believe them that they're doing it for just to get rid of naked Short Selling figured out impose a new system that better catches it. Okay, I'm above board for that one. like I Like that. if however, it's just a political move to get votes and then they bring it back and they're literally doing it when there isn't that issue there.

anyway. I Don't know I'm not by any means an expert on this. South Korean Market structure or mechanics that seems a little bit messed up because then once again, they're potentially sacrificing The credibility to become a larger player in the global scale of markets. So interesting sides to this whole story.

Breaking news over the weekend. Obviously the initial reaction was very bullish because shorts Rec covering Will it continue? Not because of shorts, the action might keep going to the upside, but that would be because of something else. So just want to share everything going down in South Korea and the short seller band that is as of now temporary, but we'll see what plays out in the long term.