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Open Interest Changes
South Korea is prohibiting stock short-selling until June 2024, in a move that triggered a big rally for equities and increased trading volumes. The benchmark KOSPI and the tech-heavy KOSDAQ soared 5.7% and 7.3%, respectively, resulting in both indexes closing out their best session since late March 2020. Short-selling is an investment strategy in which traders or hedge funds sell borrowed shares with the aim of buying them back later at a lower price. It's a risky and costly strategy that requires a margin account and collateral, with the potential for unlimited losses as the stock's price can rise indefinitely.
Snapshot: "The [South Korean] measure is aimed at fundamentally easing 'the tilted playing field' between institutional and retail investors," Financial Services Commission Chairman Kim Joo-hyun said at a news briefing. "Amid continued uncertainty in financial markets, major foreign investment banks have been engaged as a matter of practice in unfair trades... and we determined that it would be impossible to maintain fair trading discipline." The regulator added that it will also implement a zero-tolerance approach to illegal practices like naked short-selling, with a special investigation team to be established and "perpetrators facing criminal prosecution." Naked Short Selling: What It Is & How It Works
To note, South Korea had already banned short-selling during the coronavirus pandemic. The ban was lifted in May 2021 for trades of companies on the KOSPI and KOSDAQ with large market caps, but the restrictions have remained in place for more than 2,000 equities. It comes as a vocal group of retail investors has continued to complain about the impact of shorting, influencing public perception ahead of general elections for the National Assembly in April. However, according to exchange data, short-selling in South Korea only accounts for a fraction of the market, about 0.6% of the KOSPI and 1.6% of the KOSDAQ.
Over in the U.S.: The SEC has issued controversial bans on the short-selling of certain stocks before, covering hundreds of financial equities during the financial crisis of 2008, and it was again discussed during the banking crisis earlier this year. Many have cited that regulatory intervention was needed, at times, to protect companies and stabilize the market, which could have real-world effects like spooking depositors or prompting bank runs. Others have argued that the restrictions were not only unnecessary, but actually harmed market quality, stability and discovery. In turn, those could impact liquidity and pricing efficiency, while short-sellers may use other instruments like futures, options and swaps to get around any bans. SEC approves new rules on short sales and securities lending disclosures
Investors were watching Warren Buffett's performance over the weekend as Berkshire Hathaway (BRK.B) (BRK.A) reported a 41% Y/Y jump in Q3 operating earnings. The results were driven by strong numbers in its insurance divisions, which were partially offset by profit declines in utilities, energy and railroad businesses. Berkshire's cash pile also grew to a record $157B, prompting some acquisition speculation. SA analyst Cavenagh Research was surprised by Buffett's decision to slow down stock buybacks, but said he "continues to favor investment in Treasuries over equities." About 78% of Berkshire's $318.6B of equity holdings, at fair value, were concentrated in American Express (AXP), Apple (AAPL), Bank of America (BAC), Coca-Cola (KO), and Chevron (CVX). (239 comments)
Burger King, owned by Restaurant Brands International (QSR), will not expand its plant-based offerings in the U.S. in the near term. "It's not a big part of the current focus," said Restaurant Brands CEO Josh Kobza, but noted that demand for such options is stable. Kobza added that plant-based options are more popular internationally, particularly in western Europe. Producers of plant-based meat substitutes have been buckling under fading popularity and weak consumer demand. Beyond Meat (BYND) previously provided a grim outlook, while Archer-Daniels-Midland (ADM) warned of demand softness and destocking in the plant-based protein market persisting into 2024. (1 comment)
Fortnite maker Epic Games is now taking Alphabet's (GOOG, GOOGL) Google to court over antitrust claims related to the Play Store's payment system. Epic, which will open arguments in a jury trial today, is not seeking financial compensation, but is calling for changes to Google's practices. The gaming company claimed that Google has been illegally driving up fees and restricting rivals from distributing apps directly. "These claims are baseless," responded Wilson White, VP of government affairs & public policy at Google. Epic filed a similar case against Apple (AAPL) in 2021, but it lost on most counts and both companies have asked the Supreme Court to review the ruling. Google is already facing a landmark antitrust case from the Department of Justice, one that has made Barclays increasingly concerned. (2 comments)
In Asia, Japan +2.4%. Hong Kong +1.7%. China +0.9%. India +0.9%.
In Europe, at midday, London flat. Paris -0.5%. Frankfurt -0.3%.
Futures at 7:00, Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude +1.6% to $81.80. Gold -0.3% to $1,994.20. Bitcoin +0.4% to $35,236.
Ten-year Treasury Yield +4 bps to 4.60%.
Today's Economic Calendar
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