[At a Crossroads: Short Selling] Political Circles Also Move to Improve Short Selling System

Park Yong-jin, Democratic Party of Korea lawmaker [Photo by Yonhap News]

[Asia Economy Reporter Koo Eun-mo] Movements to improve the short-selling system are becoming active in the political sphere as well.

On the 21st, Park Yong-jin, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, announced that he will soon propose an amendment to the Capital Markets Act that prohibits short-selling from the point when each corporation's fiscal year has ended until the day after the business report is submitted.

Listed companies are required to submit their reports to the Financial Services Commission and the Korea Exchange within 90 days after the end of their fiscal year. The amendment also includes a provision to ban short-selling for 30 days when a major event report is submitted to the Financial Services Commission or when disclosure is required under the exchange's disclosure regulations. Park said, "There have been many cases where retail investors suffered due to information asymmetry," adding, "The purpose is to fundamentally block institutions or foreign investors from obtaining negative information first and engaging in borrowed short-selling."

On the 10th, Hong Sung-guk, a member of the Democratic Party of Korea, proposed an amendment to the Capital Markets Act to strengthen penalties for illegal short-selling. The amendment raises the penalty for illegal short-selling from the existing "maximum fine of 10 million KRW" to a "penalty based on the order amount." It also includes provisions for criminal punishment with imprisonment of more than one year or fines up to five times the amount of unjust gains for illegal short-selling. Hong pointed out, "Compared to countries like the United States, which imposes up to 20 years imprisonment for illegal short-selling, or France, which imposes fines up to ten times the unjust gains, the penalty level in our country is excessively low."

There have even been calls to abolish short-selling altogether. On June 6, Kim Tae-heum, a member of the Future United Party, stated the purpose as "to enhance market stability and protect small individual investors," and took the lead in proposing an amendment to the Capital Markets Act that completely bans short-selling. The explanation was that speculative short-selling lowers corporate value and causes harm to small investors who lack the information and capital compared to institutional investors.

This content was produced with the assistance of AI translation services.