Finance Commissioner Eun Seong-soo is on the 3rd at the briefing room of the Seoul Government Complex in Jongno-gu, Seoul for a briefing on whether to extend the ban on short selling of stocks. /Newsis
On the 3rd, the Financial Services Commission decided to extend the ban on short selling for 50 days until May 2. Since then, short selling will resume for the stocks that are constituents of the KOSPI 200 and KOSDAQ 150 indexes. The Financial Services Commission banned short selling for six months after the stock price plunged in March last year due to the Corona 19 incident, and was scheduled to resume on March 15, extending another six months.
Short selling is an investment technique that borrows stocks, sells them in advance, and buys them later, and makes money when stock prices go down. Financial experts assess that short selling plays a midnight function that allows investors to actively find risky stocks whose stock prices surged more than their actual value and eventually maintain fair stock prices. It is a necessary system during the stock market boom these days. For this reason, the International Monetary Fund (IMF) recently recommended a resumption, saying, “The ban on short selling is costly.” Currently, only Korea and Indonesia have banned short selling in the world, and many point out that it is necessary to resume short selling in order for the Korean stock market to be included in the index of developed countries.
However, the criticism that the domestic short-selling market is a’sloping playground’, which is advantageous only for large-sized investors such as institutions and foreigners, is also not easy. In addition, if the stock price returns to a downtrend after the resumption of short selling, with a large influx of novice investors during the recent stock market boom, it is burdensome to endure the accusations that will be poured out on the government. After contemplating, the Financial Services Commission chose a compromise plan of extending the ban for 50 days and partially reopening it, along with a promise to complete the improvement of the short selling-related system, which is disadvantageous to individual investors, before May 3rd.
In order to protect individual investors, from April 6th, amendments to the Capital Markets Act will be implemented to strengthen penalties for illegal non-borrowing short selling frequently used by some large-invested investors. In addition, to prevent illegal short selling in advance, it is necessary to hurry to establish a comprehensive monitoring system and wire short selling system. In addition, in order to increase the accessibility of individual short selling, it is necessary to secure the stock rental amount of the owner of 2 to 3 trillion won without any problems.
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