(Updates with details)
By Cynthia Kim
SEOUL, March 13 (Reuters) - South Korea’s financial regulator will ban short selling in listed shares on the Kospi and Kosdaq starting on March 16 for six months to curb speculative trading as the economic blow from the coronavirus outbreak widens.
The clampdown comes as Seoul’s benchmark index, the Kospi, plunged 13.2% this week, in its biggest drop since October 2008, even as President Moon Jae-in promised to offer “unprecedented measures” to help Asia’s fourth-largest economy cope with the coronavirus on Friday.
The Financial Services Commission said the decision to ban all short selling is the strongest step it has taken to address equity market volatilities, to stem any herd-like behaviour.
Short selling is when a trader borrows a company’s shares, typically from a broker, to sell them in expectation the price will fall. The trader then profits from the price decline when they repurchase the shares later to return them.
“We have taken similar measures in 2008 for eight months but that was originally intended for three months which was extended twice. So a six-month ban on short-selling is the strongest measure we have taken so far,” said a FSC official, who declined to be named because of internal policy.
South Korea is suffering from the region’s biggest COVID-19 epidemic outside of China with more than 7,900 cases, although authorities are cautiously seeing a downward trend in daily increases.
The Korea Exchange activated trading curbs on the nation’s stock market on Friday for a second day to calm investors panicking after U.S. equity markets on Thursday suffered their worst day since the 1987 “Black Monday” crash.
The Bank of Korea (BOK) on Friday said its seven-member committee is discussing whether to hold a rare inter-meeting review to cut policy interest rates, as the cost of raising U.S. dollars in derivatives market surged to a six-year high, suggesting that the market may be headed for a credit crunch.
The BOK has not delivered an emergency rate cut since October 2008 during the global financial crisis.
A 25-basis-point cut would take the base rate to 1.00%, the lowest since the BOK adopted the current policy system in 1999. (Reporting by Cynthia Kim; Editing by Clarence Fernandez and Christian Schmollinger)