April 25, 2024

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[THE INVESTOR] South Korea's biosimilar developer Celltrion could benefit from a set of tougher measures on short selling to come into force next week, a local brokerage firm said on March 24.

From March 27, stocks with a sudden and abnormal increase of short-sale transactions will be classified as so-called “overheated stocks” and will be banned from further short-selling the following day.

Celltrion, which has been a target of short sellers, is likely to see its share rebound with the new rule, Mirae Asset Daewoo said.

“The companies that are expected to post improved earnings in the first quarter have high possibility of showing an upward trend after short covering,” said Yoo Myoung-gan, an analyst at Mirae Asset Daewoo.

Short covering refers to the practice of traders reducing or eliminating their exposure to a short position when the stock price is expected to go up.

Along with Celltrion, other firms that hold high short-selling balance and undervalued stocks such as Hotel Shilla, Lotte Chilsung Beverage and LG Household & Health Care will see a positive impact from the measures, he said.

Celltrion shares have declined over 17 percent this year.

Under the new rule, deadlines for reporting and disclosure of short positions will also be shortened. The Financial Services Commission will impose a disclosure requirement which obliges investors to publicly reveal their short positions once they reach 0.5 percent of a company’s share capital, or over 1 billion won ($867,000).

Short sellers, mainly institutional and foreign investors, sell stocks they do not own, hoping to profit by buying it back at a lower price later. Retail investors are allowed to short sell stocks here but securities firms seldom lend stocks to them due to their lack of credibility.

At the time of the global financial crisis, South Korea banned all short selling. That ban was lifted for most companies in June 2009 and restrictions on financial stocks were loosened in 2013.

By Park Han-na (hnpark@heraldcorp.com)