The government has decided to temporarily ban short selling until the end of June next year.

The Financial Services Commission(FSC) announced the move on Sunday, saying that the ban will be applied to all equities on the main KOSPI, as well as KOSDAQ and KONEX markets from Monday.

Short selling is an investment or trading strategy that speculates on a decline in the price of a stock or security, with investors trading with borrowed shares that they intend to buy back and return later for less money, netting the difference between the price they sold and re-bought it for.

So far, the ban has been partially applied to stocks included in the KOSPI 200 index and Kosdaq 150 index.

The FSC cited the discovery of widespread illegal short selling by global investment banks and institutions, raising concerns that the practice has undermined the formation of fair prices.

During the eight-month ban, the government plans to improve regulations to prevent the recurrence of illegal practices with an initial move to implement measures that promote a “level playing field” for retail and institutional investors.

It also plans to detect and punish naked short-selling activity by conducting a comprehensive investigation into global investment banks, launching a special unit on Monday for that purpose.