[2020 National Audit] Park Yong-jin "Need to Establish Monitoring System for Illegal Naked Short Selling"

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] On the 23rd, Park Yong-jin, a member of the Democratic Party of Korea, urged financial authorities to establish a real-time monitoring system capable of preventing illegal naked short selling.

During the comprehensive audit of the Financial Services Commission and the Financial Supervisory Service by the National Assembly's Political Affairs Committee, Park pointed out, "Despite the short selling ban period, 14,000 suspected cases of naked short selling occurred in the foreign investor restriction system," adding, "Among them, about 5,300 cases go beyond suspicion and pose significant problems."

According to data submitted by the Financial Supervisory Service, on August 27, a foreign investment company repeatedly experienced a shortage of balance in the foreign investor restriction system. The Financial Supervisory Service explained, "Since lending was provided, it does not constitute short selling under current law."

Park raised concerns, stating, "Under current law, the stock settlement date is two days after the stock transaction, and if lending was done on the 27th, the stocks scheduled for return should have been recorded before the settlement date," adding, "The return confirmation should have been completed by the morning of the 29th, but stocks confirmed for return were not deposited even by the 28th, the day before the settlement date."

He continued, "In normal lending through the Korea Securities Depository, 'settlement failure' occurs, which reveals the occurrence of naked short selling retrospectively," but "in the foreign investor restriction system, sales are blocked in advance due to balance shortages, preventing such settlement failures."

Park criticized, "If foreign investors keep placing lending orders and continue attempting naked short selling, they can evade the law by disguising it as 'lending,' while in reality, they continue to execute sales that are naked short selling," adding, "This is why our stock market is criticized as a 'foreigners' playground.'"

Park urged, "An investigation should be conducted on cases where returns have not been confirmed under current law," and "A full investigation of balance shortage cases occurring during the short selling ban period within the foreign investor restriction system is necessary, and those strictly violating current law should be reviewed."

In response, Yoon Seok-heon, Governor of the Financial Supervisory Service, said, "The emergence of so-called new types of short selling causes confusion," adding, "We believe it is necessary to examine this closely and will achieve improvements in the system."

Financial Services Commission Chairman Eun Sung-soo also said, "We have been trying to establish a monitoring system for two years, but it has not gone well," adding, "As an IT powerhouse, it would be good to have transparency, and I will discuss this with the practitioners."