Eun Seong-su, "Personal Short Selling Participation... Considering Gradual Expansion" (Comprehensive)

[Image source=Yonhap News]

[Asia Economy Reporters Jihwan Park and Eunmo Koo] Eun Sung-soo, Chairman of the Financial Services Commission, stated that in response to demands for expanding individual investors' participation 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 an online (non-face-to-face) year-end meeting with the press corps regarding improvements to the short selling system.

He 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 for short selling. Instead, we will define qualifications 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), and the commission is considering introducing similar criteria for participation in short selling.

At the 'Improving Accessibility for Individual Lending' forum held on the 2nd, strengthening investor protection was also identified as a key issue when expanding individual short selling investments. 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 can yield profits only up to the principal when stock prices fall, but losses can exceed the principal if prices rise, making it riskier than regular stock trading. 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."

He also mentioned that the ongoing survey of private fund managers has found no large-scale insolvency incidents like the Lime Asset Management case.

The financial authorities have been conducting a full survey since August on about 10,000 private funds and 234 management companies. Chairman Eun said, "As of the 4th of this month, about 40% of the private fund survey has been completed and is expected to finish in the first quarter of next year. When announced in August, we expected to complete it by the second half of this year at the earliest or by the end of this year at the latest, but as we proceeded, there were many things to check, causing delays." However, he emphasized, "Speed is not everything; accuracy is important, so we are cooperating closely with the industry."

Chairman Eun also noted that in the inspection of private fund managers, a priority selection process was conducted for high-risk and watchlist managers, completing inspections of 17 companies by the end of November.

He said, "The Financial Supervisory Service will take necessary procedures against some managers suspected of wrongdoing based on inspection results, and comprehensive inspections will continue next year." He added that if problems arise, they will respond quickly to prevent the spread of investor damage.

Furthermore, Chairman Eun stated, "No major problems have occurred in the funds during this investigation, and although some managers did not fully comply with regulations while managing funds, there have been no large-scale damage cases like Lime Asset Management."

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