Financial Services Commission Decides Partial Resumption of Short Selling from May 3 (Q&A)

[Asia Economy Reporter Ji-hwan Park] Financial authorities have decided to extend the temporary short-selling ban, which has been in place since last year, until May 2.

The Financial Services Commission announced on the afternoon of the 3rd that it held an emergency meeting and resolved to extend the temporary short-selling ban, initially applied until March 15, until May 2. From May 3, short-selling will resume only for the constituent stocks of the KOSPI 200 and KOSDAQ 150 indices. These stocks were selected because they are familiar to both domestic and foreign investors and have high utilization in linked trading between the derivatives market and the stock market.

Financial Services Commission Chairman Eun Sung-soo stated, "In our capital market environment, which is internationally connected, there was a consensus that it is difficult to completely or indefinitely ban short-selling, which is a 'global standard.' However, since there are significant market concerns and worries about the resumption of short-selling, we decided to minimize market shocks through a partial resumption."

Below is a Q&A with Chairman Eun Sung-soo.

Q. The Financial Services Commission has previously announced extensions of the short-selling ban close to the implementation date. This time, the announcement was made about a month in advance. Why was today chosen as the decision date for the short-selling related decision?

- Recently, there have been many articles about short-selling in the media, and during such times, many asked, "What is the Financial Services Commission's position?" I asked them to wait until the Financial Services Commission meeting because this decision was not made by me alone and it affects the market. Considering your demands, it seemed better to announce early. Secondly, if a partial resumption is decided, it takes about two months to prepare the system, so I thought it would be helpful to decide and prepare early.

Q. Do you think the previously announced measures, such as strengthening the illegal short-selling monitoring system, are sufficient?

- I did think it would be good to have a real-time detection system. However, after two or three discussions with IT experts about its feasibility, it was said that it is not technically impossible. But technically impossible and practically feasible are different. For example, to prevent drunk driving, you might stop the engine from starting. That might be technically possible, but the cost would be astronomical, so is it really necessary? So, although technically possible, if the cost is astronomical, what meaning does it have? Another issue is that real-time information requires processing a lot of data, which can slow down processing speed. There were concerns that stock trading execution might be delayed and the system could be overloaded. So, the conclusion at the time was to conduct prior inspections and strongly punish those caught later. Although it does not monitor everything perfectly, I believe that illegal short-selling can be blocked effectively by utilizing the exchange and securities firms' systems well.

Q. Why was the extension set until May 2 instead of the usual three-month period?

- Since it is a partial resumption, about two months of trial operation of the system is needed. This period would be about April. Unexpected issues might arise, so we decided to allow some leeway and prepare thoroughly, setting the date beyond April to May. May 3 was chosen as the earliest realistic and technically feasible date.

Q. As concerns about stock market overheating grow, collective actions by individual investors against short-selling forces have been observed. What is the response strategy to such movements after the resumption of short-selling in May?

- First, our situation differs from other countries, so it is difficult to predict in advance. Market-disturbing actions should be avoided. We will carefully monitor any potential possibilities. However, Korea has a price limit system where the upper and lower price limits are 30%, unlike some advanced countries like the U.S., where daily price fluctuations are unrestricted. Therefore, I believe the same behavioral patterns will not appear.

Q. When will the ban on stocks other than the KOSPI 200 and KOSDAQ 150 constituents be lifted? What level of development is expected for the illegal short-selling detection system before deciding to resume short-selling for the other stocks?

- We did not specifically discuss other stocks today and will extend the ban without setting a deadline for now. To decide again, the Financial Services Commission will need to convene. Until then, we will observe the market trends from May 3. We will evaluate whether the partial resumption affects the market and whether the systems we have built are functioning properly, and whether market participants feel comfortable with this.

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