[Initial Insight] Korea Investment & Securities Short Selling Hide and Seek

"Concerns Over Trend Selling" Refusal to Disclose Affected Stocks
Korea Investment & Securities Sanction Proposal Replaced with Short Selling Affected Stocks Sanction Proposal on FSC Agenda

[Asia Economy Reporter Ji Yeon-jin] "Is it listed in the Financial Supervisory Service's sanction status? We are checking with the relevant department, but they rather ask back, 'Is there such a (sanction) case?'"

When inquiring with the securities firm to cover the case where Korea Investment & Securities was fined 1 billion KRW for violating short-selling regulations, this was the response. The sanction could not be found in the Financial Supervisory Service (FSS) website's sanction-related disclosures or in the agenda items publicly released by the Securities and Futures Commission (SFC). Journalists covering securities firms often look through the electronic disclosure system called 'DART' to find article ideas, and it was at the tail end of the Q1 report disclosed by Korea Financial Group, the parent company of Korea Investment & Securities, in May that the short-selling fine was belatedly discovered.

According to the SFC operating rules, minutes and agenda items must be disclosed on the Financial Services Commission (FSC) internet homepage within two months after the meeting ends. However, ① matters that may affect trials or investigations, ② matters that may significantly impact financial market stability, ③ matters concerning corporate, group, or individual management or trade secrets, ④ matters that may infringe on personal privacy, ⑤ matters related to decision-making processes such as sanction agreement procedures that, if disclosed, could seriously hinder the commission's independent and fair work, ⑥ matters under internal review by the commission, and ⑦ other matters that could seriously affect the commission's fair and independent work or the autonomy of financial institutions may be excluded from disclosure.

It is unclear which of the above seven exclusion clauses the Korea Investment & Securities short-selling violation case falls under. However, an FSC official explained on the 28th of last month when announcing the comprehensive short-selling measures, "There is no agenda titled 'Korea Investment & Securities,'" and "Since the agenda includes the names of the short-sold stocks, that is probably why it was not found." In fact, the agenda approved by the SFC was titled 'Measures on the investigation results of short-selling restrictions violations on stocks of 939 companies including SK Co., Ltd.'

The financial authorities' explanation that they listed the short-selling stocks in the agenda title while sanctioning the securities firm for violating short-selling regulations is difficult to understand. Moreover, the FSS sanction disclosure status did not reveal the case, citing that "sanctions on financial companies for unfair trading investigations are rare cases." Given that individual investors have persistently demanded the abolition of the short-selling system, a sensitive issue, this explanation seems unsatisfactory. Could it be that they were concerned about increasing criticism from individual investors due to the short-selling sanction?

Especially, at the time the sanction was approved, the chairman of the FSC had an in-law relationship with Kim Nam-gu, the chairman leading Korea Investment & Securities. Considering that the FSC has so far rejected individual investors' requests to disclose short-selling victim stocks on the grounds that "there is a risk of trend selling of those stocks," there is suspicion that they took care not to reveal the securities firm's name. To reduce unnecessary misunderstandings, they should have actively disclosed it. Secrecy breeds distrust in policies. A transparent information disclosure system is the way to restore investors' trust and properly operate short-selling.

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