Assemblyman Kim Han-jung urges comprehensive reform of short-selling system, calling it "absolutely favorable to foreigners"

Published 24 Jul.2022 23:40(KST)

"Individual Investor Share Remains at 2.3% Even After System Improvement"
"Comprehensive Overhaul Needed for Collateral Ratio, Repayment Period, and Illegal Short Selling Sanctions"

[Office of Congressman Kim Han-jung]

[Asia Economy Reporter Ra Young-cheol] Kim Han-jung, a member of the National Assembly from the Democratic Party of Korea (Namyangju-eul, Gyeonggi), stated on the 24th, "The playing field remains completely tilted even after the improvement of the short-selling system," urging a comprehensive reform of the short-selling system.

Currently, to engage in short selling, stocks must be borrowed. Individuals use the lending market, while institutions and foreigners utilize the securities lending market.

The collateral ratio is 140% for individuals and 105% for institutions and foreigners. The short-selling repayment period is limited to 90 days for individuals, but there is no separate repayment period for foreigners.

According to data obtained by Kim Han-jung’s office from the Korea Exchange, in June of this year, individuals accounted for only 2.3% of short-selling transactions.

This level is not significantly different from before the short-selling system improvement in April last year, with institutions accounting for 22.8% and foreigners 75.0%. (Based on trading value in the KOSPI market)

Furthermore, the number of violators reported to supervisory authorities for suspected naked short selling was 63 cases last year and 51 cases as of July this year, showing little change before and after the strengthening of illegal short-selling sanctions.

For example, from January this year to the 8th of this month, Samsung Electronics, which had the largest short-selling trading value, saw its stock price fall by 28%. LG Chem, Kakao, and HMM, which are among the top short-selling stocks, fell by 42%, 37%, and 37%, respectively. (As of July 10)

Kim Han-jung pointed out, "With the U.S. base interest rate expected to reach 3.5% by the end of the year, the outlook for the Korean stock market is bleak due to massive outflows of foreign capital," adding, "The short-selling market, which profits from stock price declines, remains absolutely advantageous to foreigners even after the April 2021 short-selling system improvements."

He continued, "It is necessary to review the different short-selling repayment periods and collateral ratios applied to foreigners, institutions, and individuals, and to comprehensively overhaul the system, including strengthening sanctions against naked short selling."