Short Selling Avoided Only During 'Sonagi'... Donghak Ants "Will Wage Anti-Government Struggle"

Short-Selling Ban Extended Again...Partial Resumption of Short-Selling on 350 Large-Cap Stocks from May
Watching Voter Sentiment for April By-Elections
"Short-Selling Issue Already Reflected in Market...Impact Will Be Less Severe"

Dealers are working at the Hana Bank dealing room in Jung-gu, Seoul, on the 4th, following the Financial Services Commission's announcement to resume short selling only for KOSPI 200 and KOSDAQ 150 index components starting May 3. Photo by Jinhyung Kang aymsdream@

[Asia Economy Reporter Ji Yeon-jin] From May, short selling will resume for 350 mid-to-large cap stocks. The short selling ban, which was scheduled to end on March 15, has been extended once more, but short selling will be allowed only for large-cap stocks where price adjustments are difficult. Contrary to earlier expectations of a three-month extension of the short selling ban, partial resumption of short selling will take place immediately after the April 7 by-elections, drawing sharp criticism as a move considering the voting intentions of the 'Donghak Ants' (individual investors).

According to the Financial Services Commission on the 4th, short selling that will resume from May 3 will be permitted only for 350 stocks comprising the KOSPI 200 and KOSDAQ 150 indices. This is the so-called 'Hong Kong-style short selling,' which allows short selling only for large-cap stocks with high market capitalization and trading volume in the KOSPI and KOSDAQ markets. The market consensus is that the resumption of short selling is necessary as the KOSPI index has surpassed the 3000 mark this year, stock prices are soaring, and 'debt investing'?borrowing to invest in stocks?is occurring, leading to a rapid influx of investment funds into the stock market.

Short selling is a transaction where an investor borrows stocks not owned in their account, sells them first, and then buys them back after a promised period to return the stocks. If the stock price at the time of repayment is lower than at the time of borrowing, the investor profits, making it an investment technique that bets on stock price declines. It has the advantage of stabilizing a soaring market by guiding stock prices to trade at their actual value. However, the Donghak Ants, who have recently supported the domestic stock market, have raised suspicions of price manipulation by institutions and foreigners through short selling and have demanded its abolition. With political involvement, a compromise was reached with a '45-day extension and partial resumption.'

However, opposition is growing as stocks with large short selling balances, such as Celltrion and HL Biopharma, which individual investors have targeted in their 'anti-short selling movement,' are included in the stocks for which short selling will resume in May. Jeong Ye-yeon, head of the Korea Stock Investors Association, criticized, "(This decision to extend short selling) is simply an election measure," adding, "Short selling forces earn 39 times more profit than individual investors, yet no fundamental measures to prevent public harm are presented, and wrapping it up as a stopgap is a clear dereliction of duty."

The Donghak Ants argue that allowing short selling on large-cap stocks will cause the index to fall, which will be linked to index-linked products, inevitably leading to price declines in other stocks. Jeong added, "It is only a matter of time before the KOSPI falls back to the 2000 level," and "We are angry at the Financial Services Commission's complacent response and will launch a struggle against the government."

The timing of the resumption of short selling is also controversial. The Financial Services Commission states that with the Capital Markets Act amendment, which strengthens penalties for illegal short selling, coming into effect on April 6, an additional 45-day extension is unavoidable considering the preparation period for institutional improvements. However, criticism has arisen that the market lost trust due to the roughly two-week gap before the law's enforcement.

In the market, since the re-extension of the short selling ban has been controversial since early this year, it is being regarded as a neutral issue. Since the short selling ban period is not long and short selling will resume mainly for large-cap stocks, the prevailing view is that market shock will be minimal. Lee Jin-woo, head of investment strategy at Meritz Securities, said, "Since small and mid-cap stocks are sensitive to short selling, if only large-cap stocks resume, the market will not react immediately."

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