"Urgent Need for Bold Short Selling Reforms"... Financial Authorities Ponder Amid National Assembly Pressure

Voices Grow for 'Temporary Short-Selling Ban' Ahead of April General Election Next Year
Political Affairs Committee to Discuss Short-Selling System Improvements This Month... Internal Emphasis on 'Positive Functions' Also Raised

Financial Services Commission Chairman Kim Ju-hyun is wearing glasses at the National Assembly's Political Affairs Committee audit held on the 11th. Photo by Kim Hyun-min kimhyun81@

The voices in the National Assembly demanding improvements to the short-selling system are growing louder. Especially with the general election scheduled for April next year, calls for a 'temporary ban on short selling' are intensifying. A public consent petition posted on the 4th of last month (a petition concerning the improvement of the short-selling system to maintain the stability and fairness of the securities market) has been referred to the National Assembly's Committee on Finance and Economy. If more than 50,000 people agree to the public consent petition, the relevant standing committee must discuss it. Meanwhile, the Financial Supervisory Service announced on the 31st of last month that it will launch a special investigation team on short selling consisting of 20 members. It also plans to conduct a full investigation of short-selling transactions involving more than 10 major global investment banks (IBs).

Yoon Chang-hyun, a member of the People Power Party, recently said in a phone interview with Asia Economy, "Although a complete ban on short selling is difficult, a bold improvement is necessary," adding, "We plan to discuss the contents and schedule of system improvements with the Financial Services Commission chairman and address the public consent petition in November." Yoon added, "There is no reason for the Financial Services Commission to be accused of only siding with foreigners when the market's neutrality and trust are being questioned."

In response to public opinion demanding improvements to the short-selling system, Yoon and other People Power Party members such as Yoon Joo-kyung·Yoon Han-hong pressured the Financial Services Commission during the comprehensive audit of the Committee on Finance and Economy on the 27th, calling for a 3 to 6-month ban on short selling and system improvements. In response, Kim Ju-hyun, chairman of the Financial Services Commission, avoided a direct answer, saying, "We will try to promote all system improvements from scratch through transparent and reasonable procedures with the help of the country's top experts."

The Financial Services Commission is currently preparing system improvement plans but is in a difficult position. This is because banning short selling could hinder the inflow of global funds. In South Korea, short selling was temporarily banned during times of global market instability such as the 2008 global financial crisis, the 2011 European debt crisis, and the 2020 stock market crash caused by COVID-19.

Opposition to banning short selling also comes from within the National Assembly. An anonymous member of the Committee on Finance and Economy said, "Right now, due to public opinion, there is no atmosphere to rationally judge and discuss the short-selling system." He added, "One of the backgrounds for the occurrence of large-scale stock price manipulation cases was the ban on short selling, so even when discussing system improvements, other voices such as the 'positive functions of short selling' must be heard."

There are also criticisms that a 'temporary ban on short selling' is meaningless. A financial authority official said, "The Financial Services Commission completely banned short selling when the stock index plummeted due to the COVID-19 crisis in 2020, and since May 2021, short selling has only been allowed for KOSPI 200 and KOSDAQ 150 stocks," adding, "Since short selling is banned for 350 stocks, the claim for a 'temporary ban' is rhetoric."

Concerns have also been raised that policy reliability and consistency could be shaken. Until now, the government and financial authorities have taken the position that "a full resumption of short selling is necessary" to be included in the Morgan Stanley Capital International (MSCI) developed market index. In fact, restrictions on short selling are repeatedly pointed out in MSCI reviews.

Considering this, there is speculation that the Financial Services Commission will prepare improvement plans aimed at easing discrimination against individual investors in short selling. Previously, the Financial Services Commission extended the repayment period for individual investors' borrowed short sales from 60 days to 90 days and lowered the collateral ratio from 140% to 120%. In contrast, foreigners and institutions have no repayment deadline for borrowed short sales. Their collateral ratios are about 105% for stock lending and 102% for bond lending.

The Committee on Finance and Economy plans to decide on the discussion content and date after reviewing the Financial Services Commission's improvement plans. The Financial Services Commission plans to finalize the improvement plans by early this month and report them to the committee.

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