[On-site Video] "Individual Investors Harmed by Short Selling... Need for Pre-Detection System" Stock Investors Rally

"Insufficient as a Post-Event Response... Must Act in Advance"

[Asia Economy PD Yoon Jin-geun] “Financial Services Commission Chairman Kim Joo-hyun, immediately establish a system to detect illegal short selling and naked short selling!” Individual stock investors strongly urged financial institutions and the government to establish measures to thoroughly eradicate short selling.

The Korea Stock Investors Union (HanTuYeon) held a rally on the morning of the 24th near the back gate of the Government Seoul Office in Jongno-gu, Seoul. They argued that the measures proposed by financial institutions and the government to eradicate short selling are insufficient to actually eliminate it and called for stronger responses.

The group shouted slogans such as “Financial Services Commission, immediately establish an illegal short selling detection system,” and “Immediately implement Article 1 of the Financial Services Commission Establishment Act: ‘Investor Protection.’” They also attached or wore signs with phrases like “Save Donghak Ants,” “Absolutely Oppose Short Selling,” “Protect 10 Million Stock Investors, Financial Services Commission,” “Short Selling Without Repayment Period Is a License to Kill Individual Investors,” and “Raise Margin Requirements to 140% for Institutions and Foreigners” on walls along the sidewalks.

The Korea Stock Investors Association (KOSIA) held a rally near the back gate of the Government Seoul Office in Jongno-gu on the morning of the 24th, urging authorities to take strong measures to eradicate short selling. The photo shows a placard attached by KOSIA to a street tree near the Government Seoul Office. Photo by Jin-geun Yoon PD yoon@

The group complained that individual investors suffer damages due to short selling forces. Jeong Eui-jeong (64), the representative of HanTuYeon, who took the microphone to campaign, said, “What other country besides South Korea has short selling forces earning 39 times more profits than individual investors?” emphasizing, “Why must individual investors be scapegoats in our stock market?”

According to a paper titled “Investment Performance of Short Selling and Margin Trading” published in Volume 37, Issue 4 of the Journal of Financial Management Research in December 2020 by Dr. Lim Eun-ah of Hanyang University and Professor Jeon Sang-kyung of the Business School, the average daily profit from short selling transactions was approximately 1,250.7 million KRW over 36 months from June 30, 2016, to June 28, 2019, which was about 39 times higher than the average daily profit from margin trading (31.82 million KRW).

The financial authorities are also preparing measures to detect illegal short selling. In July, the Financial Services Commission, Supreme Prosecutors’ Office, Financial Supervisory Service, and Korea Exchange announced measures to strengthen detection and punishment of illegal short selling. These include initiating planned investigations and audits if unfair trading suspected to exploit short selling is detected, and increasing the severity of penalties.

The Korea Stock Investors Association (KOSIA) held a rally near the back gate of the Government Seoul Office in Jongno-gu on the morning of the 24th, urging authorities to take strong measures to eradicate short selling. A participant in the rally is shouting slogans. Photo by Jin-geun Yoon PD yoon@

The group pointed out that the illegal short selling eradication measures announced by the financial authorities are insufficient to actually prevent short selling activities. Representative Jeong said, “It is positive that measures have begun to be established, but the results vary greatly depending on where the focus is placed,” adding, “What we want is preemptive detection, not punishment after the fact and confiscation of hidden assets, which are unnecessary.” He continued, “The focus should be on prevention, but the current measures lack any plans for preemptive detection, which is disappointing.”

As an alternative, Representative Jeong proposed establishing a system to detect illegal short selling in advance. Specifically, he said, “The ‘Foreign Investor Limit Management System’ (FIMS), which can prevent naked short selling, already exists,” and “If a foreigner places an order exceeding the limit, the order is immediately canceled. This system can be adapted and implemented immediately.”

He also criticized the difference in short selling repayment periods between individuals and institutions. He said, “As an individual investor, my biggest complaint is that the short selling repayment period is 90 days for individuals, but institutions and foreigners can theoretically extend it up to 10 years,” pointing out, “This creates a structure where profits from short selling are eventually made.” He added, “If the short selling repayment period is forcibly limited to about 90 to 120 days, individual investor damages would be greatly reduced.”