The hottest issue in the stock market since last year would be a "short selling ban." The Financial Services Commission (FSC) announced on February 3^rd that it would extend the ban further until May 2^nd. This is in contrast to most other countries, such as France and Italy which resumed short selling after a temporary ban to stabilize the market due to COVID-19. In addition, Andreas Bauer, head of the IMF's Korea Mission, said on January 28^th, "If the ban on short selling is extended, it could cost a lot in terms of market efficiency, and there is no problem to resume short selling in the much-stabilized Korean financial market." Amid concerns over South Korea's ban on short selling, which has lasted for more than a year, is it right to continue the ban? Short selling should be resumed after May for following three reasons.

  First, short selling increases the efficiency of the stock market. Market efficiency means that the information of companies in the market is quickly and accurately reflected in stock prices. According to the Korea Capital Market Institute (KCMI), short selling can reflect negative information about companies immediately and affect actual value of companies in market prices, which leads to maintaining market price efficiency in terms of price discovery function. This could reduce the potential risk factors in the stock market, which could prevent stock price bubbles and losses to individual investors. Hwang Sei-woon, a capital markets research fellow at the KCMI, said in an interview with Maeil Business that if the ban on short selling continues for a longer time, it could encourage a stock price bubble, stressing the need to resume short selling. In fact, he explained that from December 8^th to January 8^th, the KOSPI soared about 17%, rising sharply compared to other countries' stock markets, raising concerns about a market bubble. Compared to the U.S. and Japanese stock markets, which did not ban short selling despite COVID-19, Dow Jones Industrial Average on the New York Stock Exchange rose 3%, and Nikkei 225 on the Tokyo Stock Exchange rose 6.3%. Amid growing concerns over bubbles due to the surge in the stock market, Hwang argued that short selling could function positively in removing the bubble of highly valued stocks.

  Second, short selling promotes liquidity in the stock market. In the stock market, a person must sell a particular stock in order for someone else to buy the stock. Without short selling, potential sellers of the stock are limited to shareholders, which can lead to an imbalance between buying and selling if the person holding the stock does not present a selling order. Short selling is an investment strategy that sells stocks without holding them, so it creates a demand for many investors to sell new stocks. In addition, the shares sold must be paid back, creating demand for purchases, which leads to securing liquidity in the stock market. However, the extended ban could put the Korean stock market in danger of plunging into liquidity. According to JoongAng Ilbo on February 5^th, Nader Naeimi, head of Dynamic Markets at AMP Capital Investors, said, " Given that Korea is in a bull market, the extended ban on short selling could lead to reduce market liquidity unintentionally." Moreover, Italy, Austria, Belgium, Greece, France, and Spain, which banned short selling from March last year, terminated their restrictions on May 18^th. According to CONSOB, the public authority regulating the Italian financial markets, it is due to a "progressive normalization in financial market conditions together with a decrease in market liquidity." Considering the liquidity of the stock market, it is more appropriate to resume short selling rather than ban it.

  Finally, short selling secures investment opportunities for institutional or foreign investors. According to the JoongAng Ilbo, Lee Hyo-seob, senior research fellow at the KCMI, explained that allowing short selling has the advantage of increasing the expected return on the same risk. Consequently, short selling allows financial institutions to design various 'medium-risk-medium return' financial instruments.[1] For example, one might buy a particular stock and short-sell another stock through a long-short fund. Medium-risk-medium-return financial instruments, which are higher than deposit rates and lower risk than stock investments, are popular in the current low-interest and low-growth era. Therefore, the ban on short selling prevents investment opportunities for various investors. Yang Hyang-ja, a lawmaker of the Democratic Party of Korea, raised concerns in an interview with YTN that without short selling, it would be difficult for financial institutions to present various derivative financial instruments or strategies, which could dampen the market and cause foreign investors to leave. In fact, according to the Financial Supervisory Service, foreign investors sold 2.65 trillion won in the Korean stock market in January, which continues the sell off for consecutive two months. Short selling should be resumed because when it continues to be banned, foreign investors could leave.

While announcing an extension of the ban on short selling on February 3^rd, the FSC said "It is inevitable to resume short selling wholly." This is because of the excellent economic function of it. Short selling has the advantage of increasing the efficiency of the market as it has the price discovery function that prevents stock price bubbles. In addition, short selling increases liquidity in the market and secures investment opportunities for foreign and institutional investors. Therefore, short selling, which helps smooth out the stock market, is essential. To solve the problem pointed out by experts and opponents of short selling led by individual investors, the FSC announced on December 18th, 2020 that it would increase opportunities for individual investors and establish a system to detect illegal short selling. With improvement measures for Korean short selling, short selling should resume after May.

The two sides of whether the ban on short selling over a year should be extended continue to butt heads. Those in favor of extending the ban, including the Korea Stockholders Alliance and individual investors, argue that individual investors are likely to be damaged by foreigners and institutional investors who can manipulate the market. They also insist that short selling should continue to be banned on the basis that regulations and punishments for the side effects of it, along with risks from unfair trade are weak. However, those who oppose the extension, saying that short selling, should now be resumed, refute those points saying that it prevents stock market bubbles, increases efficiency, provides liquidity, and secures investment opportunities for institutional and foreign investors. The resumption of short selling would be a significant policy change in the Korean stock market, which is currently in a bull market. After much discussion, the government should decide to satisfy financial authorities, individual investors, foreigners, and institutional investors.