High Dissatisfaction with Short Selling... Financial Authorities "No Immediate Plans to Change the System"

Individual Investors "Rules Must Change"
Demand Improvements in Collateral Ratio and Repayment Period
Financial Services Commission Maintains Fundamental Position

[Image source=Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] As the domestic stock market continues to weaken, calls for a ban on short selling are rising, but the financial authorities' stance remains unchanged.

Individual investors are raising their voices to change the 'rules' as stocks targeted by short-selling forces show a downward trend amid a situation where the foreign investor ratio is overwhelming. They point out the need for improvements in collateral ratios and repayment periods. While institutional investors and foreign investors have collateral ratios set at 105% or higher, individuals face a higher requirement of 140%, which they argue is unfair.

Institutions and foreigners must maintain 5% of the amount as a balance when borrowing stocks for short selling, but individuals must hold 40%. Additionally, while institutions and foreigners have an unlimited repayment period when borrowing stocks for short selling, individual investors are only given 90 days, which is a major point of dissatisfaction among individual investors.

Experts explain that although not all of these individual claims are valid, improvements to the short selling system are still necessary. Jeong Ho-cheol, secretary-general of the Citizens' Coalition for Economic Justice, said, "One of the frightening aspects of short selling is that losses can be unlimited, and since individual investors relatively have less information and lower credit, it is necessary to maintain a higher collateral ratio than institutions and foreigners for stability." He added, "Usually, institutions and foreigners repay borrowed stocks within 1 to 2 months," and explained, "The longer the period, the more fees or interest must be paid." He also said, "Since there have been cases where the repayment period was abused, it is worth considering setting the period to about six months for foreigners and institutions," and added, "We need to consider the fact that foreigners overwhelmingly dominate those who engage in short selling."

Despite strong criticism of short selling from individual investors, the financial authorities' stance remains fundamental. A Financial Services Commission official stated, "We will take measures to stabilize the market depending on the situation, but there are no immediate plans to change the short selling system." However, the official added, "Regarding the repayment period, since last November, individual investors have been able to extend the short selling period indefinitely, effectively removing the period, but this has been misunderstood," and added, "The 140% collateral ratio for individuals may be excessive, so we are considering lowering it to a reasonable level."

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