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(2nd LD) S. Korea to tighten rules on stock short selling amid market rout

All News 10:33 March 10, 2020

(ATTN: UPDATES with remarks from central bank chief, additional information in paras 15-23)

SEOUL, March 10 (Yonhap) -- South Korea's financial authorities said Tuesday they will tighten regulations on stock short selling as part of market stabilization measures amid increased fluctuations sparked by the outbreak of the new coronavirus and a slide in global oil prices.

Finance Minister Hong Nam-ki said the government will temporarily ease its requirements for the designation of certain shares subject to a possible ban on short selling.

The decision came in a meeting of economy-related ministers and officials held in Seoul.

A finance ministry official later said the enhanced regulations will take effect from Wednesday, with its details to be explained by the Financial Services Commission after the local stock market closes Tuesday.

An electronic board showing South Korea's key stock index is shown at a trading room of Hana Bank in Seoul on March 10, 2020. (Yonhap)

"(The government) will swiftly and boldly take additional market stabilization measures if necessary," Vice Finance Minister Kim Yong-beom told reporters.

The move follows heavy losses in the local stock market, believed to have been caused partly by massive short-selling by foreigners and institutions that apparently expect additional drops in local stock prices.

The benchmark Korea Composite Stock Price Index (KOSPI) plunged more than 4 percent Monday to close at a six-month low of 1,954.77.

Foreign investors sold a net 1.3 trillion won (US$1.1 billion) on Monday alone, the highest amount since the Seoul bourse operator began tracking such data in 1999.

U.S. stock market also crashed, with the Dow Jones industrial average plummeting 7.79 percent Monday (local time) in the face of the spread of the coronavirus and a sharp decline in oil prices.

Vice Finance Minister Kim Yong-beom (R) speaks during a meeting at the Hall of Banks in Seoul on March 10, 2020, to discuss policies on macroeconomic and financial affairs, in this photo released by the finance ministry. (PHOTO NOT FOR SALE) (Yonhap)

Kim partly blamed the new coronavirus for fluctuations in global markets.

"The fast spread of COVID-19 and its unpredictability are factors that boost uncertainties in global markets," the vice minister said.

"The volatility in the global financial market is expected to continue for some time depending on how the current situation unfolds in the future," he added.

South Korea has reported over 7,400 cases of the novel coronavirus since confirming its first case Jan. 20.

The virus currently carries a relatively low fatality rate of about 0.7 percent in South Korea, but its high infection rate is forcing the people to stay home, causing serious problems for the local economy such as reduced spending that in turn will inevitably lead to loss of jobs.

Bank of Korea (BOK) Gov. Lee Ju-yeol also vowed active efforts Tuesday to help stabilize the local market.

"Risks to the financial stability are expanding on increased fluctuations in the local financial and foreign exchange markets due to the spread of COVID-19," the top central banker noted in an emergency meeting held at the central bank in Seoul.

"(The BOK) will seek to stabilize the financial market by actively using all its available policy measures," he told the meeting, according to the BOK.

Lee especially stressed the need to support small and medium-sized businesses that he said may face liquidity crunches should the conditions continue to worsen, the BOK said in a released statement.

He also instructed BOK officials to take steps to stabilize the foreign exchange market if necessary.

On Monday, the local currency closed at 1,204.20 won per U.S. dollar, plunging 11.9 won from the previous session's close.

The won advanced against the dollar after the BOK and finance ministry both vowed to take market stabilization steps, trading at 1,197.30 won per dollar as of 10:20 a.m.

The KOSPI too was in positive ground, gaining 6.05 points or 0.31 percent.

Many, however, believe the virus outbreak may have already done permanent damage to Asia's fourth-largest economy.

A number of global agencies have revised down their growth outlooks for South Korea's economy, with the Bank of Korea also slashing its own growth estimate to 2.1 percent from the previous 2.3 percent.

Global credit ratings agency S&P Global Ratings has cut its 2020 growth projection for South Korea to 1.1 percent in two downward revisions in less than a month.

Seoul has proposed boosting its fiscal spending by an additional 11.7 trillion won to help offset the fallout from the virus outbreak.

The request for the extra budget is now pending at the parliament.


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