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Korean Brokerages Fall After Short-Sales Ban Lifted

Woori Investment & Securities
Signage for Woori Investment & Securities Co., a unit of Woori Finance Holdings Co., is displayed at the company's headquarters in Seoul. Photographer: SeongJoon Cho/Bloomberg

Nov. 14 (Bloomberg) -- Daewoo Securities Co. led shares of South Korean brokerages lower in Seoul after the nation lifted a five-year ban on shorting of financial stocks.

Daewoo, the country’s second-largest brokerage by market value, sank 6.1 percent, the biggest intraday decline since December 2011, to 8,930 won as of 12:13 p.m. on the Korea Exchange. Samsung Securities Co. slid 2.7 percent and Woori Investment & Securities Co. fell 5.2 percent, while the benchmark Kospi index rose 0.6 percent.

South Korea began allowing investors to short sell shares of banks, brokerages and other finance companies from today, lifting a ban that had been imposed in October 2008 to bolster stocks at the height of the global financial crisis. The Financial Services Commission said the nation’s equities market has stabilized since July and removing the restriction may help improve trading volumes.

“Brokerage shares seem to be particularly vulnerable after the ban on shorting was lifted as the industry’s profitability has been weak,” Kang Seung Gun, a Seoul-based analyst at Daishin Securities Co., said by phone today. “It’s hard to expect an earnings turnaround in the sector in the near term.”

Among the 62 brokers operating in South Korea, 26 failed to make profits in the April-September period, while combined industrywide earnings plunged 63 percent from a year earlier as broking fees dropped and earnings from trading stocks and bonds with their own accounts shrank, the Financial Supervisory Service said in a statement on Nov. 11.

South Korea lifted the ban on short sales -- which occur when an investor sells borrowed securities in anticipation of a price decline -- for non-financial companies in June 2009.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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