With less than two months remaining on the end of the temporary short sale ban (March 15), the Democratic Party is actively considering extending the ban for another three months. Based on this proposal, the Democratic Party decided to hold the Financial Services Commission and Party Government Council as early as next week. The final decision is expected to be announced through a plenary meeting of the Financial Services Commission next month.
A Democratic Party official said in the currency on the 21st, “In order to resume short selling without disrupting the market, various systems need to be supplemented. There are still institutional loopholes, and the three-month extension is being caught.” According to officials, in addition to the extension of the ban, the Democratic Party is discussing ▶ whether to restrict items subject to short selling ▶ whether to expand the access to short selling by individual investors.
① Hole between the full moon =There is a legislative void behind the Democratic Party’s judgment that extension is inevitable. In order to prevent the practice of illegal short selling (non-borrowing short selling, etc.), which has been cited as a source of distrust of short selling by individual investors, the National Assembly passed the revised bill of the Capital Markets Act at the plenary session on the 9th, and the Financial Services Commission issued a follow-up enforcement decree four days later. It is a content that imprisonment for one year or more for illegal short selling or a fine of 3 to 5 times the profits from illegal activities. The problem is that this law will take effect on April 6th. If short selling resumes from March 16 as scheduled, a three-week legislative vacancy will arise.
② Restriction on target items =Another part to be discussed is whether the items allowed for short selling should be restricted when short selling is resumed, and if so, by what criteria. Currently, there are various standards for companies that allow short selling in the Democratic Party. ▶ Companies with a market capitalization of KRW 450 billion or more ▶ Companies in the top 30-50 by trading volume ▶ Companies included in the KOSPI 200 index ▶ Companies included in the KRX300 index, etc.
There is also a proposal to introduce a Hong Kong-style system that combines several conditions. Hong Kong allows short selling only to stocks with a market capitalization of HK$3 billion (about 4453 billion won) or more and a 12-month turnover (the rate at which stockholders change) is 60% or more. Financial Supervisory Commissioner Yoon Seok-hyun mentioned these foreign cases at last year’s national audit, and said that domestic introduction is also being considered.
③Expand ant accessibility=The Democratic Party is also considering ways to expand the accessibility of individual investors (ants) to short selling. Until now, short selling has been recognized as a’tilted playground’ that is advantageous only to institutional investors and foreigners. This is an issue being reviewed by the Financial Services Commission as well as the Democratic Party. According to the ‘2021 Business Plan’ announced by the Financial Services Commission on the 19th, the Financial Services Commission will focus on lowering the threshold for short selling to individual investors this year. As a specific plan, it was suggested to secure stock loans for individual investors and provide a borrowing window.
The Democratic Party is contemplating how far it will expand. This is because even the same ants have varying degrees of investment ability, period, and capital. A plan to open it to professional investors first, and to gradually expand it by following the trend is also being discussed.
Academia, which strongly insists on resumption of short selling, agrees that supplementing the system is essential. Ahn Hee-joon, president of the Korea Securities Association, a professor of business administration at Sungkyunkwan University, said, “Short selling itself is a system with more net functions such as increasing liquidity.” I said.
Reporter Kim Jun-young, Intern Reporter Kim Soo-hyun [email protected]