Eun Seong-su Participates in Individual Short Selling... Considering Gradual Expansion After Allowing Mainly Professional Investors

[Image source=Yonhap News]

[Asia Economy Reporter Eunmo Koo] Eun Sung-soo, Chairman of the Financial Services Commission, stated that in response to demands for expanded participation of individual investors in short selling, the commission plans to proactively allow investors who meet certain conditions to participate first, followed by a gradual expansion.

Chairman Eun made these remarks on the 14th during the ‘2020 Financial Services Commission Press Corps Year-End Meeting’ held online (non-face-to-face) at the Government Seoul Office.

Chairman Eun said, “Currently, regarding individual investors’ participation in short selling, there are two voices: one calling for allowing individuals to participate due to criticisms of a ‘tilted playing field,’ and another expressing concerns about potential harm to individuals. Going forward, we will listen to opinions within these two groups and seek common ground by narrowing differences.”

He added, “We will open opportunities to individuals, but not allow just anyone to borrow securities and short sell. Instead, like private equity funds, we will define conditions for professional investors and initially permit those who can bear responsibility based on experience or assets, then gradually expand this. This could be a compromise point.” Currently, individual investors must invest at least 300 million KRW to invest in professional private equity funds (hedge funds). This means the commission is considering introducing similar criteria for participation in short selling.

At the ‘Improving Accessibility for Individual Securities Lending’ forum held on the 2nd, strengthening investor protection was also identified as a key issue when expanding individual short selling investment. Since short selling carries greater risks than regular stock trading, enhanced investor protection measures are necessary.

A representative from Korea Securities Finance explained, “Short selling is riskier than regular stock trading because profits are limited to the principal when stock prices fall, but losses can exceed the principal when prices rise. Therefore, investor protection measures such as mandatory pre-education, setting borrowing limits tailored to investor capability and type, and establishing collateral ratio standards are needed.”

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