Abstract One of the most pressing regulatory issues of our time is whether, when, and how short selling should be regulated. Short selling facilitates the dissemination of negative information that is otherwise not available to the marketplace, thereby improving market efficiency. However, it may also disrupt market stability, particularly during times of stress. Therefore, regulators seek to regulate this market practice in a balanced manner. This paper examines the Korean short selling regime, the world’s longest ban, instituted following the COVID-19 pandemic. It argues that the regulatory system is run on archaic methods. In particular, our analysis demonstrates that the rules are overly restrictive and complex compared to those in other major jurisdictions. Also, critical decisions are entirely at the government’s discretion, rendering it vulnerable to political interference. Stressing the need for a revamp of the current short selling system, we call for a thorough revision of law and regulations. Market authorities must set out clear standards for regulatory intervention to avoid arbitrary and capricious decisions. In doing so, they can enhance transparency and accountability in law enforcement. Regulators should be aware that it is the most effective way to protect themselves from undue political influences and to restore regulatory trust.
Min-woo Kang (Wed,) studied this question.