Stock investors short sold Celltrion stocks worth 50.5 billion won ($44.5 million) on Wednesday despite a ban, slipping through regulatory loopholes and causing controversy about exceptional rules, market sources said.
The Korea Exchange (KRX) 한국거래소 said Thursday it banned the short selling of Celltrion shares for the previous day, declaring the stock as “overheated.”
The KOSDAQ market bans short selling if the number of a stock’s trading days is 20 days or more in the past 40 trading days, if the stock’s short selling portion is more than three times of KOSDAQ 150’s average (or 20 percent of ceiling) in the preceding quarter, if the stock’s price falls more than 5 percent and less than 10 percent in a single day, and if its short-selling transaction value increases more than five times.
Celltrion 셀트리온 stocks had met these conditions as of Tuesday, and the regulators banned its short selling for one day on Wednesday.
The exchange, however, allows short selling by market makers, including hedge funds, for the smooth transactions of stock futures and exchange-traded funds (ETF).
The problem was Celltrion posted a record high of 484.1 billion won ($427 million) for its stock futures trading on Wednesday. As a result, hedge transactions by market makers also increased to the maximum level, pushing up the short-selling amount to a record high of 50.5 billion won, they said.
“For individual investors, the KRX’s suspension of short stock sales can be seen as a loophole in the system,” a stock analyst told Korea Biomedical Review over the phone, while requesting anonymity. “What complicates the problem is such exceptional rules lack detail.”
Celltrion stock’s short sale has been a recurring problem in the past and remains a sensitive issue for individual investors, the analyst said. These individual investors had been reassured that short selling would not happen anymore, which made them feel it even more frustrating, he added.
The analyst noted, however, the short selling does not necessarily affect the stock prices less than expected.
“Also, the short selling volume accounts for only a small portion of the total transactions. Therefore few can say with certainty that short stock exchange is the reason for the stock prices going down,” he added.
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