Short Selling Extension Likely for Three Months... Park Yong-jin Says "Concerns Over Foreign Capital Outflow Are Not Significant"

Final Financial Services Commission Plan to Be Confirmed Around February 17
Focus on 3-Month Extension
Rep. Park Yong-jin: "Comprehensive System Improvement Needed"

Amid controversy over the temporary ban on short selling scheduled to end next month, an employee at a financial institution in Seoul is seen working on the 21st. The Financial Services Commission plans to hold a meeting before the ban expires on the 15th of next month to decide and announce whether to extend it. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Koo Chae-eun] The government and the ruling party have settled on extending the ban on short selling, originally scheduled to end in March, by three months until June. This move appears to be mindful of the votes of individual investors who oppose the resumption of short selling ahead of major elections such as the Seoul and Busan mayoral races.

Park Yong-jin, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, said in a phone interview on the 1st, "I believe comprehensive institutional improvements are necessary," adding, "It is the financial authorities' responsibility to create a roadmap and overhaul the entire system." Regarding concerns about capital outflow by foreign investors during the short selling ban, he said, "Short selling has been banned for the past year, but such problems have not significantly appeared," and emphasized, "We must consider that this is an effort to foster the capital market and revitalize the market."

The Democratic Party side believes that it will take about three months to prepare the system for resuming short selling. The internal consensus is that the ban on short selling will likely be lifted around June rather than in March. A key Democratic Party official said on the same day, "To resume short selling while minimizing market confusion, institutional supplementation is necessary, and it takes time to establish the system," adding, "The direction of a three-month extension is being settled (in discussions between the party and government)."

Park Yong-jin, member of the Democratic Party of Korea (National Assembly Committee on Economy and Finance) [Image source=Yonhap News]

The party and government are expected to hold consultations before the Lunar New Year holiday, review the Financial Services Commission's institutional improvement plan, and make a final decision on whether to extend the ban at the regular Financial Services Commission meeting scheduled for the 17th of this month. Considering recent political movements, it is highly likely that short selling will be banned for at least three more months and then resumed starting with some large-cap stocks.

This trend seems largely due to concerns that resuming short selling ahead of the April Seoul and Busan mayoral by-elections could provoke collective backlash from individual investors, who are gradually becoming more organized. Individual investors argue that short selling only benefits foreigners and institutional investors and are calling for its complete abolition. This public sentiment is also reflected in surveys. According to a poll conducted by Realmeter on the 29th of last month at the request of YTN, surveying 500 people aged 18 and older nationwide, 60.4% responded that they oppose the resumption of short selling. Those in favor accounted for 24.0%, and 15.5% were unsure. The margin of error for this survey is ±4.4 percentage points at a 95% confidence level.

The ban on short selling, aimed at protecting individual investors, is generally viewed positively even by the opposition People Power Party. On the same day, Ha Tae-kyung, a People Power Party lawmaker, said at an emergency committee meeting held at the Busan City Party Office, "The short selling market is a tilted playing field where individuals are thoroughly excluded and foreigners and institutions have excessive advantages," adding, "I will propose a one-strike-out law that immediately expels anyone who commits illegal short selling from the market."

Short selling is an investment method where investors borrow stocks expected to decline in price and sell them, then buy them back at a lower price to return the borrowed shares if the price falls. The Financial Services Commission banned short selling on March 16 last year to prevent further panic in the financial market following the crash caused by COVID-19. This measure was extended once and is scheduled to end on March 15.

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