[단독] Financial Services Commission received FTSE warning… “If short selling ban continues, indexes in developed countries are excluded”

Input 2021.02.04 10:57 | Revision 2021.02.04 11:49

Short selling regulation, formalizing global investor backlash
The background of the announcement of limited short selling on the 3rd

The UK Financial Times Stock Exchange (FTSE) group, a global stock index company, sent a letter to the Financial Services Commission on the 3rd to warn that Korea would be excluded from the FTSE developed country index if the ban on short selling continues. The global financial investment industry has been protesting against the government’s regulation of short selling. FTSE, along with MSCI (Morgan Stanley Capital International), is the two largest mountain range of the global stock index.

On the afternoon of the 3rd, one of the main reasons why the Financial Services Commission allowed limited short selling against KOSPI 200 and KOSDAQ 150 stocks was a warning from the global financial investment industry. If FTSE excludes Korea from the index of developed countries, large foreign capital withdrawal is inevitable.

◇ FTSE “Expected withdrawal” from government short selling ban extension

According to the financial investment industry, on the 3rd, FTSE sent a letter to the Financial Services Commission’s Capital Market Division stating that Korea could be excluded from the FTSE developed country index if the ban on short selling was maintained. FTSE has incorporated Korea into the index of developed countries since 2008. It has expressed its position to exclude Korea from the index of developed countries in 13 years.

An official said, “FTSE decided to send a letter to the Korean government from the end of January.” Explained.

FTSE, along with MSCI, is one of the two largest global stock index companies. The FTSE index is mainly used by European investment companies. Korea was added to the FTSE Developed Countries Index in 2009. Incorporation into the developed country index has the effect of increasing the proportion of investment by global asset managers who regard Korea as an advanced country market. Even so-called passive funds such as ETFs (listed index funds), global ETF funds targeting developed markets will flow into the Korean stock market.

◇ The status of the MSCI Emerging Countries Index is also’shaken’

Conversely, if it is excluded from the index of developed countries, it is inevitable to withdraw from foreign funds. This letter from FTSE revealed FTSE’s business position, but from the Korean standpoint, it seemed to have received a warning letter from the global financial investment industry.

Both FTSE and MSCI see the allowance of short selling as an indicator of developed markets. FTSE has 21 items related to government regulation and categorizes each country’s stock markets into advanced countries, advanced emerging countries, emerging economies, and frontiers. One of them is also allowing short selling.

A researcher at the Institute of Capital Markets, who requested anonymity, said, “Temporarily banning short selling is not a big problem, but if it is permanently banned, it could be expelled from the index of developed countries.” In the case of MSCI, which was not included in the index of developed countries, it was early on that it could be difficult to incorporate the index of developed countries due to the government’s ban on short selling. Kim Dong-young, senior research fellow at Samsung Securities, said, “It could have a negative impact on the maintenance of not only the index of developed countries but also the index of emerging countries.”

◇ “This measure is virtually banned from short selling”… Cold vision

The Financial Services Commission announced on the 3rd that it would allow short selling for stock index components of the KOSPI 200 and KOSDAQ 150 from early May. Similar to the Hong Kong stock market, it is a stone to designate a stock that allows short selling.

Some experts say that the Financial Services Commission is conscious of the backlash from the global financial investment industry in unveiling this policy of restricting short selling.

An asset management official said, “The ban on short selling is not just a regulation, but a measure of whether the Korean government’s stock market regulations are in line with the standards of developed countries.” “It shows the way people see Korea.”

In reality, it is pointed out that, from a global investor who actively uses a long-short investment technique that combines buying and selling, restricting short selling makes the stock market less attractive. Another official from an asset management company said, “When you enter Korea, you are only asked to buy, but it is a factor that greatly reduces the attractiveness of investment from the standpoint of global investors.”

The problem is that the government’s restrictive allowance is being accepted by a significant number of investors as a’de facto extension of the ban’.

An official at a securities company said, “The number of listed stocks in Hong Kong and Korea is 2544 and 2268, respectively, and there is no significant difference, but there is a big difference between 936 and 350 stocks allowed for short selling.” This official expressed a dissatisfaction, “If you allow it to this extent, it is virtually like not to sell short.”

One domestic hedge fund manager pointed out, “If KOSPI 200 stocks are allowed, we are told to do arbitrage on futures,” and pointed out that “in fact, the simplest hedge fund investment method, long-short investment, is regulated.” The manager added, “All other investment techniques, such as convertible bonds (CB) and bonds with underwriting rights (BW), are also blocked.”

Some point out that the government does not have clear standards. Ahn Dong-hyun, a professor at Seoul National University (economics), said, “It is not persuasive to take measures to decide whether to allow short selling with only market capitalization without a clear standard. Prof. Ahn added, “If it was to protect individual investors, prior research should have been conducted on what stocks were hit hard by short selling,” he added. .