Last month, South Korea just issued a ban on short selling. Unexpected consequences occurred. Investors began to short individual stock futures again, and the South Korean stock market may usher in more turmoil.Exchange data shows that as investors hedge against potential risks, the futures prices of some Korean company stocks are at a discount of as much as 6% to the spot price. Short sellers have turned to stock futures since South Korea unexpectedly banned short selling, a move that could drive up stock market volatility and add to the challenges faced by investors looking for stable returns.
Clepsydra Capital analyst Sanghyun Park said that the stock futures discount "may be related to the cancellation of short-selling demand." "We expect that aggressive arbitrage transactions involving futures/spot will surge, ultimately leading to increased price volatility in the spot market."
Overseas funds drove individual stock futures lower, with $142 million sold since the short-selling ban was introduced, exchange data showed. Several contracts that are currently at a discount are also targets of short sellers, mainly overseas investors.