Short selling debate ahead of politics… Financial radar that allows only part of large stocks

The Financial Services Commission announced its position to resume short selling in March./Photo = Yonhap News

Controversy continues over whether or not to resume short selling. The financial authorities, which announced their resumption policy, closed their mouths as the offensive of the politicians continued and reiterated their position that “nothing has been decided.” Resumption of only some of the large stocks and most of the stocks weigh on the compromise of extending the ban.

On the 22nd, the Cheongwadae public petition bulletin board, posted on the 31st of last month, “Petition for the permanent ban on short selling” is receiving high attention. So far, more than 169300 people have agreed. It is a petition that he is curious about the reason for lowering the value of domestic companies by resuming short selling while the KOSPI index exceeded the 3000 line and continued to rise.

Heated’short sale controversy’… The Financial Services Commission is noticing

Short selling refers to a transaction in which stocks are borrowed and sold when stock prices are expected to fall. Short selling is a legitimate transaction. However, there are many criticisms that institutions and foreigners use it as a means of controlling the market price. It is for the same reason that individuals complain of damage caused by short selling and request abolition.

The Financial Services Commission imposed a six-month ban on short selling after the stock market plunged in the aftermath of a novel coronavirus infection (Corona 19) in March last year. It is expected to resume on March 16, with an additional 6 months extension.

The Financial Services Commission has repeatedly revealed its position to resume short selling. Finance Commissioner Eun Seong-soo said at last month’s year-end conference, “We are improving the system to reduce individual distrust of short selling.”

On the 11th and 12th, he emphasized one after another, “We plan to finish improving the system, such as strengthening the punishment for illegal short selling, improving the system for market makers, and improving individual accessibility for short selling with the aim of resuming short selling in March.”

“Discussion to allow large stocks after 3 months extension”

However, the financial committee stepped back as voices demanded an extension of short selling, mainly from the political circles. Chairman Eun showed a reserved appearance on the 18th, saying, “We expect to decide (whether to resume short selling) in February, but it has not been confirmed yet.”

As the Blue House is known to be in a position that it is necessary to discuss the extension of the short selling ban, it was evaluated that a review of a plan to extend the ban for another three months has begun.

It is argued that the resumption period is extended by three more months to come up with measures to improve the short selling system, centered on the ruling Democratic Party, and that only the top stocks with a large market capitalization and trading volume are allowed first.

An aide to the ruling party’s political affairs committee said, “We are gathering opinions by resuming limited short selling after a three-month extension,” and “It seems that we will first allow large-cap stocks with relatively little impact on short selling, but we are discussing with the Financial Services Commission.”

The Financial Services Commission is in the position that nothing has been decided. However, it is a policy to minimize controversy by preparing an improvement plan quickly.

Hong Kong-style short selling designation system attracting attention again

Inside and outside the industry, it is evaluated that the Hong Kong-style short selling designation system could be introduced as an alternative. Hong Kong-style short selling is a system that permits short selling only to stocks with a market capitalization of more than HK$3 billion (approximately 470 billion won) and a 12-month turnover (the rate at which stockholders change) is 60% or more. The Hong Kong Exchange directly inspects and changes the designated stock

The Financial Supervisory Service proposed the system to the Financial Services Commission earlier last year, seeing it as a possible plan in Korea. The Financial Services Commission conducted a review on the introduction of the Hong Kong-style short selling designation system from last year, but it is true that there was a strong negative current at the time. This is because Korea’s short-selling regulations are already the strongest in the world, so further regulations can only encourage foreigners to withdraw from funds.

However, as voices continue to demand improvement of the short selling system, weight is given to the evaluation that a revised Hong Kong-style short selling designation system suitable for domestic circumstances may be introduced.

In an interview with a media outlet the day before, Son Byung-du, chairman of the Korea Exchange, said, “It seems like an alternative to consider is to extend the ones that are significantly affected by short selling (small and medium-cap stocks) and release large-cap stocks that are not affected by short selling because of the large volume of transactions.” It could also be a way to allow large-caps in stages.” Chairman Son served as Vice Chairman of the Financial Services Commission until November last year.

Regarding this, an official from the Financial Services Commission said, “We are not discussing with specific directions,” and “We will proceed with discussions with various possibilities.”

Yoon Jin-woo, reporter at Hankyung.com [email protected]