Fixing the Tilted Playing Field: Revising Discriminatory Collateral Ratios in Short Selling

[Asia Economy Reporter Ji Yeon-jin] The government has decided to adjust the collateral ratio required differently for individuals and institutions when borrowing stocks for short selling. This is an additional improvement to the system that individual investors have criticized as a 'tilted playing field' favoring institutions in short selling. The government is also considering introducing a 'mandatory tender offer system' that grants general shareholders of the acquired company the right to sell their shares to the acquirer in mergers and acquisitions (M&A).

On the afternoon of the 26th, the Financial Services Commission held a 'Capital Market Private Expert Meeting' chaired by Vice Chairman Kim So-young at the Financial Investment Association's main conference room in Yeouido, Seoul, to discuss the direction of national policy tasks in the capital market sector.

At the meeting, as a measure to improve the short selling system, a plan was discussed to rationally adjust the collateral ratio required when borrowing stocks for short selling, which currently differs between individual investors at 140% and institutions at 105%.

Additionally, the government plans to expand the ‘designation system for overheated short selling stocks’ that temporarily suspends short selling of stocks with a high short selling ratio, regularize thematic investigations into long-term and large-volume short selling transactions, and strengthen inspections of illegal short selling by periodically announcing investigation results.

The government also announced plans to strengthen the listing review of subsidiaries spun off through physical division, restricting listings if efforts to protect the parent company's shareholders are insufficient, and to grant shareholders opposing the physical division the right to request stock purchase. Furthermore, whether to introduce a preferential allocation of new shares is under consultation with related ministries and further review.

Measures are also being prepared to prevent a recurrence of the recent incident where Kakao Pay executives sold large volumes of stock options after listing, causing a sharp drop in stock prices. Following the ban on selling stocks acquired through stock option exercises for six months after listing, plans are being made to require insiders to submit stock trading plans to the stock exchange.

In addition, in response to criticism that the possibility of corporate rehabilitation is not sufficiently considered during the delisting process, the government announced plans to reorganize and subdivide delisting requirements and procedures, including expanding the scope of appeals.

The government also plans to strengthen sanctions against unfair trading such as market manipulation and to introduce public offering-type funds that invest in growth companies. Related regulations have also been prepared to manage security tokens within the regulatory framework.

Chairman Kim emphasized, "The new government's national policy tasks for the capital market aim to restore trust in the capital market by strengthening the protection of general shareholders and to expand the supply of venture capital to innovative and growth companies." He added, "By promptly implementing these national policy tasks, the Financial Services Commission expects to resolve many of the chronic issues pointed out in the capital market."

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