[사설] Stock short selling, scheduled to resume in March

What would the stock market be like if it could help with the re-election of Seoul and Busan mayors? In addition, Democratic Party lawmakers are arguing to re-extend the ban on short selling stocks, which is scheduled to be lifted on March 15. They argued, “Resumption of short selling negates the responsibility of the financial authorities.” “The ban should not be lifted until a measure is in place to completely resolve the dysfunction of short selling.” In short, the reason was’Process in the stock market’ and’Relieving the burden of Donghak ants’.

Even if they know the principle of the stock market, if they make such a claim, it is a dangerous idea. It was an inevitable measure following the Corona 19 shock that the Financial Services Commission temporarily banned short selling since March last year. At the time, when the stock market fell sharply, institutional investors made money while selling stocks using short selling. Individual investors’ losses were inevitably aggravated. Short selling was banned because of these anxiety factors.

However, this should only be a temporary measure. Short selling is a trading technique that borrows and sells stocks when a bearish market is expected, and then repays them at a lower price when the stock price falls, and makes a profit. However, this is not the core function of short selling. Institutional investors with large stocks use short selling as a hedging (hedge) method to prepare for unexpected market uncertainties. In other words, if short selling is not used, institutional investors who manage customers’ money from hundreds of billions of won to trillions of won will not have a safeguard against stock holding. This is one of the reasons why institutional investors sell stocks as stock prices soar recently. Short selling can make money in a bearish market, but it is also used as a safeguard to compensate for losses from falling stock prices.

Knowing this function of short selling, preventing the resumption is a claim to help the stock market overheat. Furthermore, it means that the stock market is viewed as a speculative plate rather than an investment. The stock market is dominated by the efficient market hypothesis that if there is a buyer, there is a seller, and new information is immediately reflected and the stock price is always in balance. The idea that the stock price rises indefinitely even if you continue to buy it with’debt investment’ and’young drag’ as it is now is not that you see the stock market as a speculative plate.

Short selling is a stock market stabilization device in a large framework because it properly removes bubbles formed in the stock market. This is why short selling is a mandatory system in major stock markets around the world, including the US. The Financial Services Commission should resume short selling without looking left or right, even to block the bubble that builds up in the stock market. With the spread of the corona vaccine, interest rates on 10-year Treasury bonds are rising sharply in the United States. It means that at any time after the money is released, the stock market may suddenly have a liquidity shrinking seizure. Please keep in mind that being driven by political logic can lead to a bigger crisis.