Opinion is divided over the decision by Korea’s Financial Services Commission (FSC) to lift its three-month ban on short-selling on all but financial stocks this week.

The FSC prohibited short-selling on all stock classes back on August 10 during the nerve-jangled days shortly after rating agency Standard & Poor’s lowered its US long-term credit rating to AA+. For initial reaction to that landmark downgrade, click here.

In the days leading up to the end of the ban, speculation has mounted over whether it would be lifted as scheduled or be reinforced on account of continued market uncertainty, particularly around the eurozone crisis. As such, it has become a contentious issue among Korean market participants.

One prominent argument was that if the FSC opted to lift the ban it would be headed in the opposite direction to peers in Greece, Italy, France, Spain and Belgium, which have all kept their universal short-selling bans in place.

But the FSC took the view that the domestic stock market has stabilised sufficiently (up 9% over the three months to October 11) to allow the ban to be lifted.

Of course, a short-selling ban on the 110 financial stocks in the country remains in place as they are deemed far more sensitive to adverse external shocks. This ban was imposed in November 2008 after the collapse of US investment Lehman Brothers.

Some professionals in Korea tell AsianInvestor that the FSC should have reached a compromise solution and extended the universal short-selling ban until uncertainties about the global outlook – and the eurozone above all – had eased.

One domestic broker notes that the percentage of foreign traders in the market will return to 20% and above, having dropped by an average of 16% over the past three months.

The fact that the ban has now been lifted will give rise to more volatility on futures contracts due to expire in the latter part of this month, he points out.

In contrast, domestic brokerages and asset management firms that have been busy planning to enter the hedge fund arena unsurprisingly welcome the FSC's move.

Many of them are targeting the launch of their first hedge funds in December, and they argue that the FSC’s decision is justified.

Although eager for the ban to be lifted completely on all stocks, the consensus among them is that the FSC has made the right decision in excluding financial stocks.

“Without financial stocks, there will be some limitation on short-selling but we can still manage to handle long/short strategies,” says one asset manager.