Lee Cites "T+2 Settlement" and Short Selling, Urges Immediate Action on What Can Be Fixed Now

Presided Over the 'Capital Market Stabilization and Normalization Meeting'

Calls for Reform via Enforcement Decrees and Guidelines

Diagnoses Four Main Causes of the Korea Discount: Corporate Governance, Geopolitical Risk, and More

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The core message delivered by President Lee Jaemyung at the “Capital Market Stabilization and Normalization Meeting” on March 18 was to prioritize quickly fixing the systems that can be addressed immediately, rather than focusing on grand slogans. Based on actively listening to the opinions of frontline investors, President Lee called for a swift push to resolve issues that can be addressed through enforcement decrees or guidelines, in order to accelerate the normalization of the capital market.

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President Lee questioned the current “T (trade date) + 2 days” stock settlement system, asking, “Why do we only receive the money the day after tomorrow when we sell the stock today?” He also addressed the issue of the short selling system, noting, “While the system itself is necessary, what matters is how to prevent its abuse.” He emphasized, “Problems on the ground, which may seem minor, can be quickly changed through enforcement decrees or guidelines, and such changes can have effects similar to major legislative reforms.”

The most notable part of the meeting was the criticism of the settlement system, in which investment proceeds are deposited into investors’ accounts after selling stocks. Domestic stock settlements take two days from the time of trade execution to settlement. Investors cannot immediately withdraw the proceeds from stock sales and instead receive the funds in their accounts on the third trading day, two business days after the sale.

When President Lee raised the issue of the “T+2 days” settlement system in his opening remarks, Jung Eunbo, Chairman of the Korea Exchange, who attended the meeting, responded that they are preparing to shorten the payment period to “T+1 day.” He mentioned that the United States shortened its settlement cycle to “T+1 day” last year, and that Europe is also planning to move to “T+1 day” from October 2027. He pledged proactive preparations so that Korea would not lag behind. The President’s question has effectively served as a trigger to advance the discussion on actual system changes.

The short selling system was also addressed. President Lee pointed to the short selling system as one of the areas needing improvement, noting that while the system itself may be necessary, the problem lies in how to prevent its abuse. He suggested that there is a need to examine whether Korea’s system is reasonable compared to international best practices and to identify and address any shortcomings.

Detailed Analysis of the Four Major Factors Behind the Korea Discount... “Geopolitical Risk Is Greatly Exaggerated”

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President Lee identified four causes for the so-called “Korea Discount” (the undervaluation of the Korean stock market): corporate governance issues, market unfairness, lack of policy predictability, and geopolitical risk. He diagnosed that the Korea Discount is not simply a matter of undervaluation, but rather the result of structural problems that make investors uneasy about the Korean market.

President Lee stated, “For decades, the same stocks of the same companies have been discounted just because they are listed on the Korea Exchange,” and cited four reasons for this. First, he pointed to the ongoing corporate governance issues and abuse of management control that stem from Korea’s unique chaebol structure, saying, “You buy a solid stock, but one day all the substance is gone and only the shell remains,” which breeds distrust and discourages investment.

He then mentioned the market’s lack of transparency and fairness, stating, “Even blatant stock price manipulation often goes unresolved or is difficult to reverse.” He pointed out that even when unfair trading is detected, punishments and recoveries are insufficient, and during this process, companies may be damaged and investors repeatedly bear losses, making the market too uncertain to invest in with confidence.

President Lee also highlighted the lack of clear policy direction and predictability as a problem. He said, “If the direction of Korea’s economic and industrial policy is unclear—where it is headed and what the focus is—investors cannot easily judge which industries the government will foster or which rules will be maintained. As a result, they are more likely to remain on the sidelines rather than invest long-term.”

In addition, President Lee cited the political amplification of geopolitical risks as another discount factor. He analyzed that anxieties stemming from the division of the Korean Peninsula have been politically exploited, leading to excessive tensions and uncertainty, and that recurring concerns about military tensions or conflict have depressed market sentiment. President Lee commented, “When verbal threats escalate to gunfire at the demilitarized zone, people start to worry that the country may be on the brink of war again,” adding, “Geopolitical risk is significantly exaggerated.”

“After the Big Rocks, Now the Pebbles” – Calling for Speed in Detailed Reforms... ‘Details’ Are Key to Restoring Trust

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President Lee described the current stage of capital market reform as “having removed a few big rocks.” Following major reforms such as amendments to the Commercial Act and strict punishment of stock price manipulation, he argued that only by addressing gaps in trading practices and market rules can the market truly become fertile ground. He said, “We are only optimized for removing big rocks, but when it comes to boosting investor confidence, ‘details’ are actually important. We need to regularly receive suggestions from those on the ground.”

President Lee continued, “Reforms through legislation are really difficult. The opposition, the media, and companies all resist because it is immediately inconvenient. Even this time, there were many who said companies would go bankrupt or foreign capital would flee.” He then added, “Those who believed that now say, ‘It’s much better after the changes.’ It’s like resisting surgery because you don’t want it, but becoming healthier after the operation and then thinking, ‘It was a good surgery.’ It’s the same with reform.”

President Lee reiterated, “While major legislation is difficult, quickly resolving many minor issues can have effects similar to large-scale legislative reforms.” He also addressed government officials, stating, “This is exactly what the government lacks. While big problems require courage and determination, it’s important to improve what are considered small issues.”

Even after the meeting ended, President Lee posted on X (formerly Twitter) that “the biggest challenge facing Korea is economic—essentially, people’s livelihoods,” and that “the reality of a large portion of assets being concentrated in real estate is producing various negative side effects. It’s time to boldly change the structure.”

In particular, President Lee stated, “The goal of a government based on popular sovereignty is to create a virtuous cycle in which people can invest stably, companies grow through innovation, and the results return to the people. Although we have not been properly valued under the name of the ‘Korea Discount,’ if we establish transparency and fairness in the market, this can surely be transformed into a ‘Korea Premium.’”

Financial Authorities to Release KOSDAQ Second Division, Low PBR Company List, and Promote a Ban on Dual Listings in Principle

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At the meeting chaired by the President, financial authorities presented several core tasks for improving the capital market: disclosing a list of companies with low price-to-book ratios (PBR), restricting dual listings in principle, reorganizing the KOSDAQ into two divisions, and strengthening responses to stock price manipulation. The aim is to allow dual listings, which harm ordinary shareholders of parent companies, only in exceptional cases, and to publicly disclose undervalued companies to pressure them to enhance corporate value. The plan is to reorganize KOSDAQ to distinguish between mature and growth companies, thereby boosting both the market’s dynamism and credibility.

Measures to restore market trust will also be strengthened. Financial authorities plan to expand the joint task force on stock price manipulation, increase whistleblower rewards to up to 30% of illicit gains and confiscated funds, and introduce grounds for confiscating principal investments in cases of insider trading or fraudulent transactions.

Comedian Jang Dongmin, who attended the meeting as an individual investor, said, “There’s a tendency for people to be swayed by fake news,” and expressed hope that the government and experts would provide “an area of trust” regarding the direction of the market. Heo Hyemin, head of the research team at Kiwoom Securities, pointed out that social networking services (SNS) have more influence than the established system and argued for restructuring the responsibility for information provision. Lee Donghoon, chairman of the KOSDAQ Association, suggested that policies should be implemented to strengthen the identity of KOSDAQ so that staying in KOSDAQ is advantageous, in order to change the current trend of KOSDAQ companies moving to KOSPI. Yeon Hyunju, head of Life Research Institute, proposed strengthening “secondary funds.”

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