"Eradicating Illegal Short Selling... Mandatory Computerization of Short Selling by Securities Firms and Strengthened Penalties"
[Asia Economy Reporter Oh Ju-yeon] Park Yong-jin, a member of the Democratic Party of Korea who declared he would officially run for the presidency after winning the April 7 by-election, sharply criticized the institutional loopholes of the current short-selling system.
On the 24th, Park held a press conference titled "Criticism of the Financial Services Commission's Short-Selling System Improvement Issues" at the National Assembly Communication Office in Yeouido, Seoul, stating, "We will eradicate illegal activities by mandating computerized short-selling for securities firms and strengthening penalties."
Park said, "If unfairness in the market is not corrected, our people, the retail investors, will inevitably suffer," adding, "Ensuring that no citizen is disadvantaged due to institutional loopholes and an uneven playing field in the stock market is not only the responsibility of the financial authorities but also the duty of National Assembly member Park Yong-jin."
He emphasized, "This is not to criticize the Financial Services Commission but to appeal to protect the precious dreams and small hopes of the people gathered in the stock market," and presented three proposals.
First, Park stated that before resuming short-selling, the illegal activities of market makers that have already been revealed must be firmly punished.
He said, "According to the Korea Exchange’s surveillance investigation, among 22 market makers, three were caught conducting illegal short-selling over periods of 20 days, 8 days, and 1 day respectively. This means it is not just three securities firms committing illegal short-selling once or twice a day," adding, "When broken down by each act, the illegal activities and resulting damages could be enormous."
He continued, "Nevertheless, the Financial Services Commission is reluctant to disclose specific details such as the quantity and stocks involved in short-selling, citing 'security' reasons," and said, "If we do not know which stocks were illegally short-sold, how many times, and the scale of these activities, it is impossible to understand which investors suffered damages and the extent of those damages."
Using Goldman Sachs as an example, which received the largest-ever fine of 7.5 billion KRW from the Securities and Futures Commission in 2018 for naked short-selling, Park pointed out, "The number of companies caught and the short duration of illegal short-selling cannot diminish the significance of the case." At that time, Goldman Sachs violated short-selling restrictions by placing sell orders on 156 listed stocks (worth 40.1 billion KRW) without borrowing between May 30 and 31, 2018.
Park proposed that the Financial Supervisory Service (FSS) should be allowed to reinvestigate illegal activities by market makers and that the FSS’s comprehensive inspections of the Korea Exchange should include illegal short-selling activities. He also stressed the need to introduce a "preemptive naked short-selling blocking" system to supplement the current system.
Park said, "So far, the monitoring mentioned by the Financial Services Commission has focused on a 'post-detection' approach," and added, "In terms of strengthening securities firms’ responsibilities and short-selling verification obligations, securities firms themselves should establish pre-monitoring systems."
He concluded, "The resumption of short-selling is possible only when market fairness is firmly established," and said, "The Financial Services Commission must present a definite promise and a concrete implementation plan this time so that the saying 'an empty cart makes the most noise' does not arise."
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