Short Selling of 103 Trillion Won Last Year... Foreigners and Institutions Account for 99% of Transactions

[Asia Economy Reporter Koh Hyung-kwang] Last year, the short-selling transaction amount in the domestic stock market exceeded 100 trillion won for the second consecutive year, following the previous year. Although the short-selling transaction amount decreased by about 20% due to the sluggish stock market, its share in the stock market did not fall behind. Foreign and institutional investors accounted for 99% of short-selling transactions, leading to continuous complaints among individual investors about the "tilted playing field."

According to the Korea Exchange on the 27th, the total short-selling transaction amount traded on the KOSPI and KOSDAQ last year was 103.49 trillion won. This corresponds to 4.52% of the total stock transaction amount of 2,287 trillion won last year. Compared to 2018, when the short-selling transaction amount was at its highest at 128 trillion won, it decreased by about 25 trillion won (19.5%), but the transaction ratio was similar to 2018 (4.57%).

Short selling is an investment technique where investors borrow stocks expecting the price to fall, sell them, and then repurchase the stocks at a lower price to return them, thereby earning a price difference profit.

In 2009, short selling accounted for less than 1% of the total transaction amount. However, after entering the 1% range in 2010, it increased annually, surpassing 2% in 2012, 3% in 2014, and 4% in 2016. In particular, in 2018, when it rose to 4.57%, stocks worth 128 trillion won were traded through short selling, surpassing the "100 trillion won short selling" mark for the first time in a year.

Last year, due to the sluggish stock market, the short-selling transaction amount was around 103 trillion won, less than the previous year, but its share in the stock market was similar to the record high in 2018.

The short-selling ratio was higher in KOSPI than in KOSDAQ. The short-selling amount traded on KOSPI was 78.23 trillion won, accounting for 6.37% of the total transaction amount (1,227 trillion won). On the other hand, in KOSDAQ, 2.38% of the total transaction amount of 1,060 trillion won, or 25.26 trillion won, was recorded as short-selling transactions.

The main investors using short selling are foreign and institutional investors. Last year, foreign investors accounted for 62.77% (64.9621 trillion won) of the total short-selling transaction amount, and institutions accounted for 36.09% (37.3468 trillion won). Combined, foreign and institutional investors accounted for 98.86%, meaning that almost all short-selling transactions are conducted by these two "big players." Individual short selling accounted for only 1.14% (1.1761 trillion won).

However, foreign investors' share of short selling decreased by 4.18 percentage points from 66.95% in 2018, while institutions' share increased by 3.91 percentage points from 32.18% to 36.09%. Individual investors also saw a slight increase from 0.85%.

Meanwhile, individual investors continue to express resentment against short selling, claiming it fuels stock price declines and creates a vicious cycle, by continuously posting petitions on the Blue House's civil petition board to ban short selling. This is because foreign and institutional investors hold a high share of short-selling transactions.

Individuals can also borrow stocks from securities firms to short sell, but the scope is limited to stocks approved by the trading securities firms. Additionally, due to relatively lower credit compared to institutions, individuals face higher collateral and interest burdens, reducing its usability. They are playing ball on a "tilted playing field." The ban on short selling was temporarily implemented as an extreme measure during the 2008 global financial crisis and the 2011 European financial crisis.

Kwon Oh-in, director of the Citizens' Coalition for Economic Justice, emphasized, "The short-selling system is designed to be absolutely advantageous to foreign and institutional investors, which violates fairness," adding, "The short-selling system must be effectively redesigned, including the level of punishment for illegal naked short selling and related regulations."