Financial Services Commission Implements Temporary Ban on Short Selling
The Financial Services Commission held a special weekend meeting on the 5th and announced a complete ban on short selling for all stocks in the domestic stock market until June 2024. This decision was made in response to market uncertainties and concerns about fair price formation through short selling.
Financial Services Commission Intensifies Efforts to Detect and Punish Unused Short Selling
To enforce the ban, the Financial Services Commission has established a special short selling investigation team and has expressed its determination to crack down on unauthorized short selling by global IBs. Financial Services Commission Chairman Kim Joo-hyun emphasized the government’s commitment to establishing a fair and efficient market to protect investors and gain market trust.
Concerns and Political Interpretation Surrounding Short Selling Ban
There are concerns that the complete ban on short selling, implemented without an economic crisis, may cause more harm than good in the market. Additionally, it is speculated that the financial authorities’ decision may be influenced by political pressure, as evidenced by recent statements and actions by members of the ruling party.
Foreign Investor Registration System Abolished to Improve Access to Capital Market
In addition to the short selling ban, the financial authorities have also abolished the long-standing foreign investor registration system, aiming to provide better access to the capital market for foreign investors. This move is part of a larger effort to improve the structure of the Korean stock market, with the ultimate goal of enhancing external credibility.
Impact on Domestic Stock Market
Following the announcement of the short selling ban, the stock market experienced a significant rise, fueled by the short cover effect. However, concerns about supply-demand imbalance in the medium to long term are on the rise, indicating potential vulnerabilities in the domestic stock market.
Overall, the financial authorities are facing scrutiny and analysis of their actions, with a focus on the potential consequences of the short selling ban and its impact on market dynamics.
[비즈니스포스트] The temporary ban on short selling was quickly decided.
The Financial Services Commission held a special meeting on the 5th, which was a weekend, and decided to completely ban short selling for all stocks in the domestic stock market until June 2024.
▲ Financial Services Commission Chairman Kim Joo-hyun (left) and Financial Supervisory Service Director Lee Bok-hyun hold a briefing on the total ban on short selling at the Seoul Government Center on the 5th. <연합뉴스>
Short selling was temporarily banned during the 2008 global financial crisis, the 2011 European financial crisis, and the 2020 COVID-19 crisis. Since May 2021, it has only been allowed for stocks that make up the KOSPI 200 and KOSDAQ 150 indices short selling again, but the ban on short selling has continued to apply to the remaining small and mid-cap stocks.
The reasons for expanding the ban were the need to respond pre-emptively to uncertainty in the market and concerns about the disruption of fair price formation through short selling without illegal use as a matter of course.
On this day, the Financial Services Commission launched a special short selling investigation team and made clear its intention to strongly detect and punish unused short selling by global IBs.
Financial Services Commission Chairman Kim Joo-hyun said, “The main goal of capital market policy is to create a fair and efficient market to protect investors and gain market trust,” adding, “What can the government do to establish the short selling a system as a system that all investors can trust?” “We will take every step,” he stressed.
However, as this complete ban on short selling does not face an economic crisis, there are concerns that it will cause ‘more harm than good’ in the market.
There is also an interpretation that the financial authorities have changed their logic and their current position as if they were under pressure from the ruling party, which was aware of the ’14 million votes’ before the general election.
Following the statement of Power People Party lawmaker Chang-hyun Yoon in October during a comprehensive examination of the National Assembly’s Political Affairs Committee, “I think the time has come to stop short selling for three to six months and drawing up basic measures,” Rep. Kwon Seong-dong announced a temporary short sale on Facebook on the 1st. He said, “I completely agree” with public opinion about the ban.
On the 3rd, Representative Song Eon-seok, secretary of the People’s Power Party, who attended the general meeting of the Special Committee on Budget and Settlement of the National Assembly, was caught sending a message to Representative Jang Dong-hyuk, the floor speaker of the same party, by said, “I plan to focus on short selling after Gimpo.”
It is known that the Office of the President has also ordered the Financial Services Commission to review measures to improve the short selling system.
As the financial authorities have maintained their stance this year to solve ‘Korea’s decline’ by continuously improving the structure of the Korean stock market, this measure is followed by a political interpretation.
He also expressed his position that short selling is a global standard and if the ban on short selling is not lifted, the external credibility of the Korean stock market will decline.
Lee Bok-hyun, head of the Financial Supervisory Service, said in an interview with Bloomberg in March, “We will consider lifting short selling regulations within this year.”
The abolition of the ‘foreign investor registration system’, which has been in force for over 30 years since its introduction in 1992, from mid-December is also a result of the financial authorities under the current administration as part of the plan to get better access to the capital market for foreign investors’.
The registration system has been identified as a representative barrier that prevents foreigners from investing in the domestic stock market. If the registration system is abolished, foreigners will be able to open an account immediately after going through procedures such as real name verification at a securities company, and corporations will be able to use the LEI (corporate identifier) and individuals will be able to invest in the Korean stock market using their passport number.
They were also more active than ever in joint public-private (IR) investment information sessions to attract foreign investors. Lee Bok-hyeon, the head of the Financial Supervisory Service, began sales of K funds to attract foreign investment by visiting Singapore and Indonesia in May, followed by the UK, Germany, and Switzerland in September.
A high-ranking figure in the financial investment industry said, “When the domestic financial sector talks about barriers to entry into developing countries like ASEAN, the first thing they consider is the risk that emanating from local financial authorities.” “Yes,” he said. .
▲ A view of Yeouido Securities District in Seoul. <연합뉴스>
The vulnerability of the domestic stock market, once again exposed along with the reckless actions of the financial authorities, also add to concerns.
The day after the ban on short selling was announced, the stock market showed an unprecedented rise, cheering the ants. The KOSPI index jumped 134 points in one day due to ‘short supply’, when foreign investors who had increased their short selling volume bought to recoup. Classified as a blue chip secondary battery stock, EcoPro has soared to the price limit.
However, the short cover effect almost stopped in one day. On the 7th, the KOSPI index sank to 2418.74, down 83.63 points from the previous day, at one point during the day, and closed at 2443.96, down 58.41 points (2.33%).
Foreign influence in the Korean stock market has been reasserted, but some say concerns about the supply-demand imbalance in the medium to long term are only increasing. Cho Tae-jin, Head of Financial Securities Department and Deputy Director
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