Extension of Short Selling Ban, Individual Investor Market Continues

Individual Net Buying Exceeds 6 Trillion Won Again
"Mid- to Long-Term Deposit Forecast at 100 Trillion"
Improvement in IPO Allotment Method
Brokerage Firms Also Push to Lower Loan Interest Rates

[Asia Economy Reporters Song Hwajeong, Ko Hyeonggwang] As the government extends the short-selling ban for six months and plans to improve the system to enhance individual investors' access to short selling, individual investors are expected to gain more momentum. Although there are opinions that the leadership of individual investors, who have driven the stock market's upward trend since the outbreak of COVID-19, has weakened, this measure is gaining traction as it is expected that the market led by individual investors will continue.

According to the Financial Services Commission on the 28th, at the emergency financial committee meeting held the day before, it was decided to extend the short-selling ban, which was scheduled to end on the 15th of next month, by six months until March 15 of next year. The Financial Services Commission announced, "Considering the recent market volatility due to concerns over the resurgence of COVID-19," and added, "During this period, we plan to strengthen penalties for illegal short selling and improve the system to enhance individual investors' access to short selling as demanded by the market." Accordingly, the short-selling ban will be extended to all listed stocks in the KOSPI, KOSDAQ, and KONEX markets.

Not only the resurgence of COVID-19 but also the growing voices of individual investors opposing short selling contributed to this extension. Individuals have argued that the short-selling system is a "tilted playing field" designed to favor foreigners and institutional investors and have insisted that the short-selling ban should be extended.

The authorities' decision to improve the short-selling system along with the extension of the ban is for this reason. Eun Sungsoo, chairman of the Financial Services Commission, said at a meeting with the securities industry the day before, "If individual investors feel unfairness in opportunities, which was not intended by the policy authorities, the system should be appropriately improved." It is expected that measures to increase individual investors' access to short selling and strengthen penalties for illegal short selling will be prepared.

The method of allocating public offering shares during initial public offering (IPO) subscriptions will also be improved to favor small investors. Chairman Eun mentioned, "The current allocation method for individual investors, where those who pay more subscription deposits receive more shares, favors high-net-worth individuals and needs improvement." This is interpreted as a continuation of criticism that small investors were excluded when large IPOs like SK Biopharm were listed recently.

Additionally, plans to reduce interest rates on margin loans provided by securities firms to individual investors are being pursued. Chairman Eun said, "While the Bank of Korea lowered the base interest rate by 0.75 percentage points this year, some securities firms did not change their margin loan interest rates at all," adding, "It is a natural right for individual investors to point out opacity and irrationality and demand improvements." The financial authorities and the industry plan to form a task force (TF) next month to prepare improvement measures.

Concerns about negative impacts on individual investors, who have led the stock market, were expected if the short-selling ban ended, but these concerns have been alleviated with the extension of the ban. An Soeun, a researcher at IBK Investment & Securities, analyzed, "By deciding early to extend the short-selling ban, the supply-demand uncertainty that could have emerged in early September was preemptively resolved," adding, "Individual supply-demand has led the stock market recovery since the COVID-19 crisis, and since lifting the short-selling ban was a downside risk factor for individual supply-demand, the potential instability has been deferred by six months."

The market led by individuals is expected to continue. There is also a forecast that customer deposits will exceed 100 trillion won in the mid to long term. Lee Kyungsoo, a researcher at Hana Financial Investment, said, "Customer deposits recently increased to 52.6 trillion won as of the 20th, setting a new record this year," adding, "Between 2005 and 2008, when a similar increase in money supply (M2) occurred over three years, stock-type investment trusts increased by 8 billion won net, and as long as the increase in money supply through low interest rates continues, customer deposits could increase to at least 100 trillion won." He added, "This means that individual stock purchases can continue in the mid to long term," and "Considering the social convention that investment methods are concentrated in stocks, it is even harder to predict the upper limit."

Looking at the monthly net buying trend of individuals, it rose to 11 trillion won in March when the COVID-19 crash occurred, maintained around 5 trillion won from April to June, dropped to the 3 trillion won range in July, but exceeded 6 trillion won again this month. This shows that individuals still have buying power.

However, there are also criticisms that individual leadership will not be as strong as before. Choi Jaewon, a researcher at Kiwoom Securities, said, "It is true that expectations for the stock market have relatively increased due to the low-interest-rate trend and real estate regulations, but considering the current credit limit of securities firms, expectations for a large influx of new funds in the short term are limited," adding, "The liquidity-driven market, which has been linked to the expansion of customer deposits and individual margin loans, is unlikely to experience explosive level-ups as seen at the last bottom."

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