[2021 National Audit] Foreign Investors After May Short Selling Resumption... 233 Trillion KRW in 50 Stocks

[Asia Economy Reporter Park Jihwan] Since the partial resumption of short selling in May this year, the short selling volume of the top 50 stocks shorted by foreigners in the domestic stock market has reached 233 trillion KRW. The transaction volume of foreign trades exempt from the uptick rule was also estimated to be about 80 billion KRW.

According to data submitted by the Financial Services Commission and Korea Exchange to Song Jaeho, a member of the National Assembly's Political Affairs Committee, since the partial resumption of short selling on May 3 for KOSPI 200 and KOSDAQ 150 stocks, the transaction amount of the top 50 stocks shorted by foreigners in the domestic stock market until mid-September was 193.776 trillion KRW for KOSPI and 39.418 trillion KRW for KOSDAQ.

Among KOSPI stocks, Samsung Electronics was the most shorted by foreigners, with a short selling volume reaching 39.336 trillion KRW. Following were SK Hynix with about 13.469 trillion KRW, Kakao with 10.604 trillion KRW, and LG Chem with 10.178 trillion KRW. In these four stocks, foreign short selling exceeded 10 trillion KRW each.

For KOSDAQ stocks, the largest shorted stock by foreigners was EcoPro BM, with short selling amounting to 2.323 trillion KRW, followed by Kakao Games at 2.134 trillion KRW and HL Biotech at 1.886 trillion KRW.

During the same period, the scale of short selling by foreigners exempt from the uptick rule reached 79.648 billion KRW across 56 stocks. The uptick rule is a system that prohibits placing a bid lower than the previous transaction price when short selling. It was introduced to prevent stock price declines and market disruption caused by short selling by restricting the ability to sell stocks while pushing prices down.

From May to September this year, foreigners short sold a total of 72.418 billion KRW exempt from the uptick rule in 8 of the top 50 KOSPI stocks. Among these, Samsung Electronics had the largest amount of uptick rule exemption short selling at 37.866 billion KRW. This was followed by POSCO with 18.3 billion KRW and LG Display with 12.8 billion KRW, where short selling was conducted in violation of the uptick rule restrictions.

The situation regarding uptick rule exemption trades in KOSDAQ stocks was even more severe. Among the top 50 KOSDAQ stocks shorted by foreigners, 48 stocks, accounting for 96%, experienced short selling exempt from the uptick rule. The volume traded was about 150,000 shares, with a transaction amount of approximately 7.23 billion KRW. Currently, the uptick rule has seven possible exemption conditions, such as when engaging in stock or index arbitrage, or conducting hedge trades to preemptively avoid risk situations caused by price fluctuations.

The number of exemption clauses for the uptick rule was originally 12 but was reduced to 7 by the Financial Services Commission in March this year. Song pointed out that these exemption clauses still effectively serve as a device to guarantee profits for sellers, undermining the purpose of the uptick rule.

Song Jaeho said, "The short selling system favors institutions and foreigners and is very disadvantageous to individual investors, so there were deep concerns about resuming short selling while maintaining the current system." He added, "Even looking only at the top 50 stocks from May to September this year, foreigners short sold an average of about 50 trillion KRW per month, so it is hard to say that foreigners have little influence on the domestic stock market."

He urged, "It is necessary to conduct a more thorough review and devise improvement measures to determine whether foreign short selling is used as a control tool for appropriate stock price valuation or merely as a means for foreigners to pursue profits."

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