Correcting Tilted Short Selling, Credit Regulations Hold Back

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 Hwang Junho] Concerns are being raised that credit lending limit regulations could hinder the expansion of short selling opportunities. On the 3rd, Eun Sung-soo, Chairman of the Financial Services Commission, announced a partial resumption of short selling and stated, "We will work to improve the credit lending limits so that they do not restrict the provision of stock lending services." However, industry insiders explain that smooth stock lending is unlikely given that credit lending limits are already fully utilized.

According to the financial investment industry on the 14th, the Financial Services Commission is reportedly considering reducing the amount of credit stock lending reflected when calculating securities firms' credit lending amounts.

Credit stock lending is a system where securities firms lend stocks to individual investors for short selling purposes. While credit financing for 'debt investment' typically carries loss risks when stock prices fall, credit stock lending for short selling carries loss risks when stock prices rise. Since the risks are dispersed between the two, the government’s intention is to revise the limit regulations to encourage securities firms to actively participate in lending stocks to individuals.

However, the total credit lending amount, including credit financing and credit stock lending, is limited to within 100% of the securities firms' own capital. The financial investment industry believes that even if short selling is resumed, it will be practically difficult for individuals to borrow stocks from securities firms unless the credit stock lending limit is calculated separately from credit lending. Even if the credit stock lending amount is recognized as less than it actually is, an increase in credit stock lending reduces the credit financing limit, so securities firms have little incentive to lend stocks to individuals. In particular, the surge in debt investment amid the stock investment craze has already exhausted securities firms' credit lending limit capacity, which is another obstacle.

An official from a securities firm said, "Most securities firms' credit lending limits are already fully utilized, so they repeatedly stop and resume credit financing services," adding, "It is doubtful which securities firm would reduce its financing limit to engage in credit stock lending."

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