Short Selling Entity Market Makers' 'Securities Transaction Tax Exemption' Reduced by 91%

Ministry of Economy and Finance Announces 'Amendment to Enforcement Rules of Tax Law'
Illegal Short Selling Not Exempt from Securities Transaction Tax

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 Jang Sehee] Tax exemption benefits on securities transaction tax for market makers, such as securities firms, who are known as major participants in short selling transactions, will be reduced. As tax benefits are curtailed, short selling orders are also expected to decrease.

The Ministry of Economy and Finance announced the "Amendment to the Enforcement Rules of the Tax Law" including this content on the 9th. This amendment is a follow-up measure to the 2020 tax law revision.

The market maker system is a system where securities firms place sell and buy orders tightly above and below the market price for stocks with sluggish trading to induce price formation and transactions.

According to this amendment, stocks with a market capitalization of 1 trillion won or more or those ranked in the top 50% by turnover rate in the KOSPI and KOSDAQ markets will be excluded from the securities transaction tax exemption for market makers. A government official stated, "Stocks with large market capitalization or abundant liquidity are already actively traded, so benefits are not provided."

He added, "Market makers operate under the securities market business regulations according to the Capital Market Act," and "Illegal short selling is not subject to securities transaction tax exemption."

In fact, an analysis of the trading status of KOSPI market maker target stocks last year showed that 107 stocks with a market capitalization of 1 trillion won or more accounted for 91% of the trading volume, while 552 companies with less than 1 trillion won accounted for only 9%.

Twenty-two domestic and foreign securities firms and investment banks (IBs) act as market makers, and the target stocks include 842 listed stocks (659 KOSPI and 183 KOSDAQ) and 206 derivative products. Securities firms must borrow stocks in advance to smoothly present sell quotes, and short selling occurs during this process.

The problem is that, contrary to the original purpose of supplying liquidity to small stocks with sluggish trading such as venture companies, trading volume has concentrated on large-cap blue-chip stocks.

For derivatives, stocks with a futures or options market trading value ratio of 5% or more or an annual trading value of 300 trillion won for futures and 9 trillion won for options are excluded.

Meanwhile, this measure will apply to transfers made on or after April 1.

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