"It's Because of Short Selling" Donghak Ants Boiling... Trading Volume Plummets This Month

Average Daily Short Selling Amount in July Down 18% from Previous Month Amid Stock Price Decline
Individual Investors Expect Further Stock Price Drop...Increase in Short Selling Amount

Kim Juhyun, Financial Services Commission Chairman, States "Short Selling Ban if Necessary"...Interpretation of Principled Remarks

[Asia Economy Reporter Ji Yeon-jin] The controversy over short selling has reignited. Recently, as the domestic stock market has plummeted, officials including the newly appointed Financial Services Commission Chairman Kim Joo-hyun have repeatedly mentioned measures to re-ban short selling. Individual investors, who have led the domestic stock market since COVID-19, are pointing to short selling as the main culprit behind the stock price decline and are demanding a complete ban. However, due to the continuous decline in stock prices this year, major stock indices have fallen to pre-COVID-19 levels, and the volume of short selling transactions has significantly decreased since the beginning of this month.

According to the Korea Exchange on the 13th, the average daily short selling transaction amount on the KOSPI this month was 387.5 billion KRW, down 18.56% from the previous month (475.8 billion KRW). The average daily short selling transaction amount was highest in January this year at 575.1 billion KRW. This is interpreted as an effect of increased betting on stock price declines amid growing concerns over U.S. monetary tightening. However, as the downward market continued this year and stock prices hit new lows daily, the short selling transaction amount also appears to have decreased. Nonetheless, the average daily short selling transaction amount by individual investors increased from 10.8 billion KRW last month to 13 billion KRW this month, indicating expectations of further declines in the domestic stock market.

Among some individual investors, voices calling for a re-ban on short selling have grown louder as the domestic stock market sharply declined this year. Especially, after Kim Joo-hyun, who took office on the 11th, recently expressed a position that a temporary ban on short selling could be considered in relation to the increased volatility in the domestic stock market, demands for a short selling ban have surged. The Korea Stock Investors Union, a group of individual investors, also held a rally on the 7th in front of the Financial Services Commission in Gwanghwamun, Seoul, demanding a ban on short selling.

However, many interpret Chairman Kim’s remarks on considering a short selling ban as a general-level government measure aimed at stabilizing the stock market. At a press conference the day before, Na Jae-cheol, Chairman of the Korea Financial Investment Association, said about Chairman Kim’s remarks, “I think it was a (no other intention) general-level statement,” adding, “Foreign countries also ban short selling when the market changes rapidly if necessary. We can also consider it if necessary. Moreover, I think the Stabilization Fund should also be utilized.” A Financial Services Commission official explained, "It means that if necessary, a ban on short selling will be considered.”