Will the Donghak Ants Craze Continue... New Stock Market System Changes in the New Year

Resumption of Short Selling and Securities Transaction Tax Rate at 0.08% for KOSPI

Transaction Tax Reduced by 0.02%P from the 1st
Individual Allotment of IPO Shares Set at 30%

Legislation Finalized for Penalty Imposition, Improvements Underway for March Short Selling Resumption

[Asia Economy Reporter Park Jihwan] This year, numerous policies designed to stimulate individual investors' sentiment will be implemented in the stock market. First, from January 1, the securities transaction tax on capital gains will be reduced, and the allocation of public offering shares (IPO) to individual investors will be significantly expanded. Whether short selling will resume as scheduled in March is also one of the biggest concerns for individual investors.

According to financial authorities on the 4th, the securities transaction tax in the stock market will be reduced by 0.02 percentage points starting this year. The transaction tax paid when transferring stocks after January 1 will decrease from 0.1% to 0.08% for KOSPI, and from 0.25% to 0.23% for KOSDAQ. The reduced tax rate will apply until next year. In 2023, the transaction tax for KOSPI will be eliminated, and KOSDAQ will see a further reduction to 0.15%.

During IPOs, the allocation of public offering shares to individual investors will increase from the existing 20% to a maximum of 30%. Up to 5% of the shares that fall short of employee stock ownership will be allocated to individuals. The allocation for high-yield funds will also be lowered from 10% to 5%, providing additional shares to individual investors. An equal allocation method will be introduced for subscription. Previously, those who invested more money received more shares, but under the equal allocation method, all investors who meet the minimum subscription amount will have an equal chance of allocation.

From the new year, new investors wishing to invest in leveraged Exchange-Traded Funds (ETFs) and Exchange-Traded Notes (ETNs) must deposit a basic margin and complete online pre-education. They must complete the pre-education operated by the Korea Financial Investment Education Institute and register the education completion number with the securities company to trade. Additionally, they must maintain a minimum basic deposit of 10 million KRW for three months from the initial investment date.

The biggest current market interest is whether the short selling system will resume as scheduled on March 16. Short selling is an investment technique where investors borrow stocks to sell when a price drop is expected, then buy them back at a lower price to return the stocks and earn a profit. While it has the advantage of curbing overheated stock prices, it is criticized for potentially accelerating price declines.

Financial authorities banned short selling on all listed stocks in the KOSPI, KOSDAQ, and KONEX markets for six months starting March 16 last year, and this measure was extended once until March this year. Currently, the authorities are working on system improvements under the plan to resume short selling on March 16. Legislation imposing fines and criminal penalties for illegal short selling has already been completed. Along with this, they have introduced measures to limit short selling by market makers (securities firms) in mini KOSPI 200 futures options, where short selling is high, and shortened the inspection cycle for illegal naked short selling from six months to one month. A system improvement plan to make it easier for individuals to borrow stocks for short selling may also be announced as early as this month. Korea Securities Finance is preparing a system to check eligible stocks and quantities for lending in real time, aiming to increase the amount available for individual short selling from about 71.5 billion KRW at the end of February last year to 1.4 trillion KRW in the future.

However, market opposition is strong. If short selling resumes, a stock price decline is inevitable, which will inevitably lead to losses for individual investors, so additional supplementary measures are needed. Above all, it is argued that the authority overseeing illegal short selling inspections should be changed from the stock exchange to the financial authorities, and the inspection cycle for short selling should be drastically shortened to within a day for the financial authorities' system improvements to be effective. Jeong Eui-jeong, head of the Korea Stock Investors Association, said, "Unconditional resumption of short selling is hard to accept, and the current system improvement measures also have many areas that need supplementation," adding, "At the very least, until the end of last year, the impact of the short selling ban on the domestic stock market should be thoroughly examined before deciding whether to extend the ban or abolish the short selling system."

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