Finance·Securities: Economy: News: Hankyoreh

The hot issue that hits the global stock market in recent years is the’war against short selling’. It is a fierce trading battle between individual and institutional investors surrounding GameStop listed on the US New York Stock Exchange. Even in Korea, individual investors have taken action by declaring a war on short selling. Is it a’group uprising’ of ants against the tyranny of the institution and the slanted playground, or is it an irrational’money game’ of ants’ anger and greed? Market interpretation is also divided. Can the ants really win the battle against short selling?

As you may know, the starting point of the short selling war is a stock called GameStop. There is an unprecedented trading battle between individual investors in the United States and institutional investors such as hedge funds for this stock. Game 1 is a complete victory for the ants. In January alone, the stock price surged more than six times. It was a procession of ants that once climbed up to 17 times the lowest price. Our’Seohak Ants’ also actively participated in the game stop trading workshop. It beat Tesla and recorded nearly 700 billion won a day. The battle is still in progress. Gamestop stock price fluctuates by nearly 50% per day, and the decline has been slowing down recently. This is because hedge funds have largely closed their short short positions. In addition, there is a pattern in which ants, which have been in intensive buying, are moving to other targets. UBS Global Asset Management Chief Investment Officer (CIO) said, “If you look at the speed and size of hedge funds’ position arrangements, the pressure from short selling losses seems to be over.” Gamestop’s stock price, which was above $300, dropped to the $100 range. There are also observations that hedge funds will rearrange their lines and resume short selling attacks. Thus, if the ants take a collective response again, the second game could take place. There is also the possibility to compete in events other than GameStop. It doesn’t seem to be over until the end yet.

Why and how did individual US investors confront the huge short-selling hedge funds? GameStop is an offline game pack company. It’s a declining industry. At the beginning of the year, however, we announce a blueprint to transform into an online platform with new executives. Many individual investors took note of the new growth potential and bought stocks, and the stock price, which had dropped to the 4 dollar level, will rise to the 30 dollar level. Then, short-selling hedge funds start to sell large-scale shorts, saying,’The stock price is too expensive for the corporate value.’ As you know, short selling is selling someone else’s stock. You bet on a stock decline. It’s the opposite of borrowing money to buy stocks. However, the short selling rate of hedge funds reaches a whopping 140%. The total distribution of stocks is 100, which means that they are going to sell 140 shares. Could the stock price not fall? Then, on the online community Reddit’s stock bulletin board, the ants’ rebellion begins. There is a massive campaign to fight against the forces of short selling. Proclaiming itself as a revolutionary army, he posted a purchase verification shot on Reddit. More than 3 million people participate in the purchase procession. As the procession of ants’ lions grows so strong, the stock price soars to $325 in no time. Tesla founder Elon Musk also set fire to it. Tesla has also been hit hard by a hedge fund for short selling. “Short selling is a scam. “How do you sell what you don’t have?” As stock prices soar, hedge funds that bet on a decline in stock prices are at bay. When the stock price rises above a certain level, the stock is bought again to prevent further losses. It is called’Short Squeeze’. In addition, borrowed stocks must be paid off by buying them as spot stocks at a certain point in time. It is called’short covering’. You have no choice but to join the lion’s procession by crying and eating mustard, and the stock price will rise even steeper. Hedge funds have suffered huge losses. Melvin Capital borrowed emergency funds due to a liquidity crisis due to the loss of about 30% of its assets under management. Several of the notorious short-selling hedge funds have lost 20-30%. Wall Street estimates that the loss of hedge funds from short selling of GameStop will be as little as 20 trillion won and as much as 100 trillion won. Citron has made a declaration of surrender, saying it will no longer issue short selling reports. American political circles are also responding. Congress has begun to consider the need to tighten regulations on short selling. It is likely that there will be a hearing on the GameStop incident. It is also evaluated that the game stop trading battle is an evolution of the operational forces. When the short-selling forces showed a loophole with the excessive short-selling position, the big-handed ants rallied the tax with a political justification to the public to “punish Wall Street”. So, it is said that the big-handed ants who bought stock in the beginning have already gotten out of the way by taking a big profit.

The evaluation of market participants is divided over the game stop situation. Remember the protest’Occupy Wall Street’ during the 2008 financial crisis. At the time, it was only a political protest, but now, more than 10 years later, it is evaluated that it was actually taking action. It is an evaluation that it was judged by the power of ants to take the profits of Wall Street, which is repeated every time the economic crisis. It is the emergence of’smart ants’ that enabled ants to respond to huge hedge funds. The ants that were scattered like sand grains in the past can now move in one direction in a single way through various online communities and free stock buying systems. Now, all you need is a smartphone to buy and sell listed stocks around the world. Real-time information is exchanged through online communities and SNS. Some full-time individual investors are armed with analytical power, intelligence, and investment techniques comparable to institutions, and their information is rapidly circulating to other ants. Information asymmetry has been greatly reduced. There are 3 million ants who participated in this game stop battle. With a huge number of ants coming together, individual stocks exert as much influence as institutional investors. It is also a social phenomenon that cannot be overlooked in that it is driven by the anger of the masses tired of inequality. It may be one aspect of economic democratization. There is also a lot of cynicism that it is just another operation that takes advantage of public anger and greed. It is an irrational, short-term overheating phenomenon created by liquidity in the stock market due to low interest rates and financial expansion. It is that it has created a ridiculous rise in stock prices by stimulating individual anger and greed, and in the end, it is nothing more than a money game to throw bombs between individuals. Financial authorities in the US are also looking to see if the ants’ gamestop purchases are subject to market correction.

The’anti-short selling movement’ has also landed in Korea. An organization called the Korea Equity Investors Association, a group of individual investors, recently officially declared the movement to abolish short selling. This group was founded after the Celltrion incident, which was a target of short selling amid controversy over high evaluation in the past. They declared that they would buy two stocks, Celltrion and HLB, which have high short selling balances in the domestic stock market. In online stock communities, coordinates for stocks with high short selling balances are actively taking place. Specific short-selling measures are also shared. The typical one is’locking the quantity’. In 2014, when institutions launched an offensive to sell short stocks in China’s oceanic resources, minority shareholders responded collectively through the stock bulletin board. In one month, the stock price from 1,240 won has risen nearly 10 times. It is mentioned as a case where minority shareholders have won the battle against the short selling forces. The method was simple. Individual investors register for an account without lending to prevent the short selling force from borrowing stocks. It’s a contract to a trading brokerage company, saying,’Don’t lend my stock to anyone else’. By drastically reducing the number of leased stocks, it blocks the means for institutions to procure or redeem short-selling stocks.

Stock prices that have been the target of short selling wars such as GameStop will naturally converge to actual corporate performance and value over time. Although the net function of short selling is said to be a safeguard against overheating the market, institutions have powerful weapons that individuals do not have. Institutions can avoid risks or increase profits through short selling, and can artificially drop stock prices if they make up their mind. The reason GameStop has become a target for ants can be seen as breaking through a loophole in the irrational system of short-selling larger quantities than distribution stocks. Short selling in Korea only accounts for 0.1% of individuals. Japan exceeds 20%. Individuals should see that they are virtually unable to use short selling strategies. Individuals are lent stocks very shortly and limitedly, foreigners and institutions can borrow virtually indefinitely for only a fee. The margin is also low, so even if the stock price goes upside down, the burden of losses is not very high. Even if you are caught selling unborrowed shorts, which are prohibited by law, you are not subject to criminal penalties with a fine of tens of millions of won. This is why the abolition voice is high despite its net function of providing liquidity and efficiency to the stock market and preventing overheating. On the 3rd, the financial authorities decided to extend the ban on short selling of all listed stocks until May 2nd. However, from May 3rd, we decided to resume short selling for 350 stocks that make up the KOSPI 200 and KOSDAQ 150 indices. It seems that the authorities have stepped back from the existing position of resumption and opted for a compromise due to the opposition of individual investors and the pressure of the politics to extend. They also came up with measures to improve the system. The financial authorities have announced that they will establish a system to quickly detect non-borrowing transactions by monitoring abnormal transactions in real time, such as sell orders that exceed the stock balance. We plan to allow individuals to differentially expand the investment limit according to their experience and ability. Through the recent revision of the law, from April 6th, the level of penalties such as fines and criminal penalties for illegal short selling will be strengthened. Can the sloped playground be even a little flat this time? Let’s watch Nonseol with you. Planning and appearance Reporter Kim Hoe-seung [email protected] Director and editor Cho So-young PD [email protected]