Foreign media ‘misuses regulations’ due to ban on short selling, Korean media ‘manipulates individual stock prices for general election purposes’
While the government maintains a lukewarm response to 'naked (non-borrowed) short selling', which is 'illegal short selling', it implemented 'give opportunities to individual investment' by 'prohibiting short selling', which foreign media reported as 'misuse' and some Korean media reported 'for general election purposes'. Negative views were reported, such as 'contributing to the manipulation of stock prices by individual investors'.
Reuters pointed out that the government’s ‘ban’ and ‘uncertainty in short selling regulations’ are hindering the upgrade of the Korean stock market.
Prior to the ‘ban announcement’, the Financial Services Commission announced last week that it would attempt to form an investigation team for illegal activities such as ‘naked short selling’, which is illegal, in response to short selling by foreign investment banks.
Reuters reported on the 6th, “Authorities and market officials cited ‘uncertainty regarding short-selling regulations’ as one of the factors that MSCI, an influential index provider, must resolve to elevate Korea to an advanced country.”
In announcing the ban, Financial Services Commission Chairman Kim Joo-hyun said, "This measure is aimed at fundamentally alleviating the 'level playing field' between institutional investors and individual investors," and added, "As uncertainty continues in the financial market, major foreign investment banks are actively engaging in unfair transactions. . It was determined that it was impossible to maintain fair trade discipline,” and ‘failure to maintain discipline due to unfair treatment of foreign investors’ was stated as the ‘reason for the ban’.
Chairman Kim announced on this day that the Financial Services Commission (FSC) will decide on ‘lifting the ban’ based on ‘whether there is significant improvement’ in a review of market activity in June next year, and the government revealed ‘inability to supervise illegal activities’ as the basis for its decision.
In principle, the Financial Supervisory Service prohibits ‘naked short selling’ (short selling of stocks without first determining that the investor can borrow or borrow the stocks).
Just before announcing the ban on short selling, the Financial Supervisory Service announced that it plans to impose fines in response to illegal unborrowed short selling of BNP Paribas (KRW 40 billion) and HSBC (KRW 16 billion) worth KRW 56 billion.
On the 5th, the Financial Services Commission, at the temporary Financial Services Commission, decided to “prohibit short selling in all domestic stock markets, including the KOSDAQ market and KONEX market, from the 6th to June 30th of next year.”
Earlier this year, the Financial Supervisory Service imposed fines on five foreign companies, including Credit Suisse, for ‘naked short selling’, resulting in an illegal response to ‘naked short selling’.
Hankook Ilbo said, “The financial investment industry has serious concerns that not only is trust in the Korean market declining, but it is also creating a foundation for the ‘long-term stock price manipulation’ method that has been rampant recently,” adding, “There is also a perception that it is ‘populism ahead of the general election’ due to a lack of justification.” “It’s strong,” he said.
The Hankook Ilbo quoted an anonymous official as saying, “In a market where short selling has disappeared, it is ‘collectivized, powerful ants (individual investors)’ that have power.” He added, “If you block information and raise the stock price little by little, like the Youngpoong Paper incident, you will see a belated upward trend.” “Only shareholders who come in will suffer damage,” the report said.
In response to the Korean government's ban on short selling, Bloomberg said, "With the ban on short selling, there will no longer be a way to put a brake on absurd valuations, so it is expected that a large bubble will form in stocks preferred by individual investors." “We do,” it was reported on the 5th.
Bloomberg also interpreted that the ban on short selling may have been for political purposes since it was implemented ahead of the general election in April next year. Bloomberg said that the size of short selling in the Korean stock market is $1.7 trillion, with 0.6% of KOSPI and 1.6% of KOSDAQ short selling. “The ban on short selling further jeopardizes the possibility of moving from emerging markets to developed markets,” he said.
EcoPro BM and EcoPro of secondary batteries, which were banned on the first day of the short selling ban, soared 15.00% and 13.81%, respectively, while L&F and Rainbow Robotics rose 9.35% and 7.11%, respectively.
On the 6th, Samsung Electronics rose 200 won (0.29%), POSCO Future M surged 15.43%, and LG Energy Solution also rose 9.45%. As of 9:13 a.m. on the 6th, KOSPI rose 50.57 points (2.14%) compared to the previous trading day. .
In the same market, on the 3rd in New York, the Dow Jones Index of the New York Stock Exchange (NYSE) rose 222.24p, the S&P 500 index rose 40.56p (0.94%), and the Nasdaq index of technology stocks rose 184.09p (1.38%), showing the 'ban' effect. It can be seen in Korea. On this day, the Korean stock market showed a 'following of individuals' led by individuals, with net purchases of 56.9 billion won by individuals and 4.7 billion won by foreigners, and net selling by institutions of 61.7 billion won.
The Korea Capital Market Research Institute said in its report 'Analysis of the Effects of Short Selling Regulations' that "A comprehensive evaluation of the results observed in the empirical analysis summarizes that the ban on short selling reduces price efficiency, increases volatility, and discourages market transactions," and added, "It is similar to a complete ban. “Rather than taking an extreme approach, we need to improve the system in a way that maintains its function but minimizes side effects,” he suggested to the government in August.