"Angry Public Sentiment" August Protest Forecast... Ants VS Foreigners and Institutions Battle "Government's Short Selling Reform"

Individual Investors' Demand to Regulate 'Institutional and Foreign Collateral Ratios, Repayment Periods' Ignored and Criticized
Financial Authorities "Providing Short Selling Opportunities to Individuals"...Individuals "Dissatisfied with Lack of Prevention and Protection Measures"

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] "Lowering the collateral ratio for individual short selling actually encourages 'debt investing' and only fuels short selling, which could lead to widespread damage. This is a deterioration, not a reform, as it completely ignores the demands of individual investors."

Jung Eui-jeong, the representative of the Korea Stock Investors Association, which has over 51,000 individual investors as members, strongly criticized the Financial Authorities' announcement of the "Measures to Strengthen Detection and Punishment of Illegal Short Selling and to Supplement Short Selling-related Systems." In a phone interview with Asia Economy, he said, "The measures announced on the 28th do not include any of the improvements individual investors have been demanding. It is a misleading and failing policy," raising his voice, "I feel not only disappointment but also anger."

Individual investors have been demanding adjustments to the collateral ratio and the mandatory repayment period for short selling. They have pointed out short selling as one of the causes of undervaluation of the domestic index and have appealed to correct the so-called 'tilted playing field' so that individuals do not suffer losses by making the system, which currently favors foreigners and institutions, more balanced if banning short selling is not possible. However, the problem lies in the differing opinions between individuals and the Financial Authorities on how to correct this tilted playing field.

Individual investors have been asking not to lower their own collateral ratio but to raise the collateral ratio for foreigners and institutions to prevent reckless short selling. They also requested that the practically unlimited repayment period for foreigners and institutions be limited to the individual level (90 days). However, the Financial Authorities decided to lower the individual short selling collateral ratio from the current 140% to 120% starting in the fourth quarter, narrowing the gap with foreigners and institutions (105%). They outright rejected limiting the unlimited repayment period for foreigners and institutions, citing "international practices make it difficult."

Criticism that the direction of the authorities' system improvement itself is wrong has been consistently raised. Instead of loosening short selling regulations for individuals to the level of foreigners and institutions, the regulations on foreigners and institutions should be strengthened to the level of individuals. Professor Kim Sang-bong of Hansung University also pointed out, "Even if individual regulations are loosened, retail investors cannot compete with foreigners and institutions in terms of information and capital strength." This is also the point emphasized by Representative Jung. He said, "It is difficult for individual investors to approach short selling," adding, "It is no different from a kindergartener fighting a professional athlete."

One individual investor said, "The Financial Authorities intend to level the playing field by lowering the threshold for individual short selling and increasing opportunities, but how many investors really understand short selling?" He clicked his tongue, saying, "They ask to stop the forces that dominate short selling, but the government seems to have no intention of touching the foreign short selling forces."

Representative Jung said, "If the policy proceeds by lowering the individual collateral ratio, it could actually increase the number of people investing with borrowed money, which is risky, and short selling could become more active, causing greater damage." He pointed out that strengthening short selling regulations on institutions and foreigners is necessary to prevent national assets from being transferred to short selling forces, but this policy focuses on sanctions and punishment rather than protection and prevention, making it a case of closing the stable door after the horse has bolted, which will only increase market confusion."

[Image source=Yonhap News]

Accordingly, the Korea Stock Investors Association plans to hold a large-scale protest rally in front of the Financial Services Commission from 11:10 AM to 1:10 PM on August 1. The rally will continue. The angry public sentiment is unlikely to subside easily. Individual investors were shocked by the fact revealed through information disclosure to the Financial Supervisory Service that Korea Investment & Securities executed rule-violating short selling of 25.52 million shares of Samsung Electronics, a national stock. What further provoked public sentiment was the slap-on-the-wrist punishment imposed by the Financial Authorities, who are supposed to supervise securities firms.

The short selling volume involved in the Korea Investment & Securities incident reached 5.9504 trillion won, but the fine was only 1 billion won. Moreover, 20% of that was reduced, so the actual payment was 800 million won. Korea Investment & Securities hastily explained, "It is not illegal short selling through borrowing, but a simple mistake of omitting the short selling indication."

CLSA Securities was fined 600 million won, Meritz Securities 195 million won, Shinhan Financial Investment 72 million won, KB Securities 12 million won, and other domestic and foreign securities firms were also fined consecutively. Individual investors view the securities firms' 'mistakes' as intentional. One individual investor pointed out, "The consistent use of fines can only be seen as leniency."

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