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S. Korea Drops Short-Sale Ban for Non-Financial Stocks

South Korea said it will end a three-month ban on short selling non-financial stocks on Nov. 10 because market volatility has decreased.

Regulators will maintain a three-year ban on short-selling financial stocks as market instability surrounding Europe remains, the Financial Services Commission said in an e-mailed statement today.

“Global financial and economic conditions have improved considerably from August,” the regulator said. “Still, potential risks persist such as a delay in resolving problems in Greece.”

The benchmark Kospi Index tumbled 12 percent in August, the month the regulator widened the short-selling ban to all stocks amid concern that European and U.S. debt would lead to a global recession.

Short sales of non-financial stocks reached 432.5 billion won ($386 million) on Aug. 5, FSC data showed. The Kospi Index has slid 15 percent from a record high on May 2 and has fallen 7.2 percent this year.

In a short sale, traders try to profit by betting stock prices will fall by borrowing shares, repaying them at a lower price and pocketing the difference.

South Korea imposed a ban on all short sales in October 2008 after the collapse of Lehman Brothers Holdings Inc. The government relaxed restrictions for non-financial stocks in June 2009 and then re-imposed it in August this year.

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