Even in the overheated market stability net function
Burden to allow for re-election in April
Financial Services Commission with the weight of resuming short selling
Controversy over the market principle when the ban is extended
The pressure from the ruling party to postpone the resumption of short selling is accelerating ahead of the April by-election for mayors of Seoul and Busan. The ruling party, which aimed at the vote of 10 million individual investors, asked the Financial Services Commission for a virtually’perfect’ way to block illegal short selling and prevented the resumption of short selling.
In addition, Democratic Party lawmakers received an undisclosed New Year’s report from the financial committee chairman Eun Seong-soo at the National Assembly on the morning of the 29th. Although the New Year’s business report is an annual procedure, the ruling party has shown an opposite position ahead of the end of the ban on short selling on March 15 this year, focusing on the discussion on short selling. Short selling is an investment method in which stocks that are expected to fall in stock are sold by borrowing and then repurchased at a lower price when the stock price actually falls. Yoon Gwan-seok, chairman of the National Assembly’s Political Affairs Committee, said, “The Financial Services Commission reported on the progress of improving the system related to short selling, and there was an order (from lawmakers) to take care of the relevant laws and enforcement decrees passed last year and settle them.”
The Democratic Party is putting pressure on the Financial Services Commission by delaying the resumption time from March to June and allowing only some stocks. The position is that short selling should resume after correcting the inclined playground. Democratic Party lawmaker Park Yong-jin announced a proposal for an amendment to the Korean Capital Market Act so that securities companies set up a computer system to process short selling orders. The content is to create a device to filter out illegal transactions such as non-borrowing short selling, starting from selling without borrowing shares in advance.
The problem is that it is difficult to filter out unborrowed short selling in real time, even if the computer system becomes mandatory. The Financial Services Commission also announced in May 2018 that it would develop a system that can identify real-time stock balances and trading quantities in real time, but it closed the plan due to possible errors in system implementation and execution. For this reason, the Financial Services Commission has been pursuing system improvement by focusing on establishing a system to detect illegal short selling afterwards and strengthening penalties. The question is whether the Financial Services Commission can withstand the pressure of the ruling party and maintain its existing position. Not long ago, the Financial Services Commission weighed on the resumption of short selling, but now it has turned to’undefined’. This is the background of rising observations that the FSC will keep pace with the ruling party both inside and outside the financial sector.
If the Financial Services Commission changes its position to an extension of the ban on short selling, it will be right for the ruling party, but it will face criticism that it has abandoned market principles. Short selling has a net function of reflecting negative financial information of a company in the stock price and receiving overvalued stocks. Another problem is that if the ban on short selling is prolonged, the domestic stock market may suffer disadvantages in the international market, such as withdrawal from foreign investors.
The need to resume short selling is raising concerns about the bubble as money is rushing to the stock market. In fact, the International Monetary Fund (IMF) pointed out on the previous day that “the market seems to have stabilized a lot after the novel coronavirus infection (Corona 19), and the economy is also recovering, so I think it is possible to resume short selling.” One expert criticized, “The resonant to Korea is great.”
Reporter Min Jung-hye [email protected]