Input 2021.01.29 17:43 | Revision 2021.01.29 17:58
Eun Seong-soo, chairman of the finance committee, visits the National Assembly
Report on progress of short selling system improvement
We don’t discuss when to resume
On the morning of the 29th, members of the Democratic Party of the National Assembly’s Political Affairs Committee called the relevant ministries such as the Financial Services Commission to hold a closed party-political discussion. On this day, the party-government meeting is held regularly every year to report on the New Year’s work, but as the ban on short selling is coming to an end on March 15th, the attention of the politicians was focused. However, it is said that no specific discussion about the timing of the resumption of short selling has been made.
It is reported that the Democratic Party lawmakers at this meeting asked the Financial Services Commission to actively respond to fake news related to short selling. Rep. Kim Byeong-wook, a secretary of the ruling party of the political affairs committee, said, “There are false news and information about short selling in stock prices, and there has been an argument that the Financial Services Commission should actively take steps to correct this.”
In addition, it was pointed out that the systems prepared by the National Assembly and financial authorities to block illegal short selling are not being properly delivered to the market. One participant said, “Chairman Yoon told Financial Committee Chair Eun Seong-soo that’the measures to block illegal short selling are quite institutionalized, and the Financial Services Commission should actively promote it.”
Since April, the Financial Services Commission has announced a legislative amendment to the Capital Markets Act, which will result in fines 3 to 5 times the profits obtained from short selling without borrowing stocks or imprisonment for more than one year. In addition, a comprehensive monitoring system for detecting illegal short selling, which allows you to know if you have borrowed after short selling, is expected to be established in the third quarter of this year. In addition, in order to break away from the existing short selling market, which is mainly for foreigners and institutions, it plans to reorganize the lending system centering on Korea Securities Finance and strengthen accessibility to individual investors.
There is no disagreement that the party should resume short selling, but it is said that it has consensus that the resumption time should be delayed after the second half of this year as these measures take effect after March, when the ban on short selling ends.
One Democratic Party member said, “As individual investors are highly distrusted and concerned about illegal short selling, it is difficult to resume short selling in March. All parties agree that it is difficult to resume short selling. The detailed discussion will begin in earnest starting from next week’s Political Affairs Committee meeting. Immediately, in mid-February, we will conclude.”
The Democratic Party’s official position is that it will first observe the decision of the Financial Services Commission. Earlier, as individual lawmakers in the party argued over whether to resume short selling, there were criticisms that “instigate market turmoil”. In addition, it was pointed out that the ruling party is intervening in the market, although the decision on whether to resume short selling is the authority of the regular meeting of the Financial Services Commission consisting of nine members as an administrative agency of the consensus. Accordingly, it is said that Kim Tae-nyeon, the representative of the hospital, asked to refrain from remarks related to short selling.
The troubles of the Financial Services Commission are getting deeper. Individual investors insist on abolishing the short-selling system, which can induce stock prices to decline. More than 200,000 people have participated in the Blue House petition for a permanent ban on short selling. The petitioner wrote in this article, “If short selling is revitalized, this government and the Democratic Party will face an unimaginable headwind and will be judged by the people.”
However, experts point out that if the ban on short selling is prolonged, side effects such as departure of foreign capital and overheating of the stock market may become more serious. Short selling is a major investment hedging tool for foreign investors, because if the ban continues, investment may become less attractive. Currently, only Korea and Indonesia are maintaining the short selling ban. When the stock market plunged in March last year due to the Corona 19 crisis, France, Italy, Taiwan and Malaysia, which banned short selling along with Korea, have already lifted measures last year. The International Monetary Fund (IMF) said, “(Korea) can resume short selling,” and said, “(If the ban continues), there may be a high cost in terms of market efficiency.”