Financial Services Commission to Announce Follow-up Measures on System Improvements Including Short Selling Computerization on the 16th

Announcement of Follow-up Measures After Min Party Political Consultative Council Meeting
FSS Reports Status of Illegal Short Selling Investigation

[Image source=Yonhap News]

The Financial Services Commission (FSC) will report tomorrow (the 16th) to the People Power Party on institutional improvement plans that include an illegal short-selling monitoring system (computerized system) and restrictions on the repayment period for foreigners and institutions. Based on this, they plan to announce follow-up measures to improve the illegal short-selling system.

According to the People Power Party and financial authorities on the 15th, a joint party-government meeting will be held tomorrow at 10:30 a.m. under the theme "Directions for Improving the Short-Selling System to Restore Investor Confidence." The meeting will include the FSC, the Financial Supervisory Service (FSS), Korea Exchange, Korea Securities Depository, and the Korea Financial Investment Association.

This follows President Yoon Suk-yeol’s remarks at the Cabinet meeting the previous day, urging the creation of "fundamental improvement measures," prompting the party and government to begin preparing follow-up actions. President Yoon said, "To prevent further damage, short-selling will be banned until fundamental improvement measures are created," adding, "Neglecting the issue of illegal short-selling makes fair price formation difficult, causes significant losses to individual investors, and can lead to a decline in trust in the securities market and investor withdrawal."

The FSC plans to report at the joint party-government meeting on institutional improvement plans such as the introduction of a securities trading system (computerized system) to preemptively block naked and indefinite short-selling, which has been raised in a National Assembly public petition, and restrictions on the repayment period for borrowed short-selling by institutions and foreigners.

Regarding the computerized system, it is known that a specific direction will be set after gathering opinions from market participants and experts. The construction of a computerized system was previously judged to be realistically difficult by the National Assembly’s Political Affairs Committee when reviewing the 2020 bill on criminal penalties for illegal short-selling.

A financial investment industry official said, "To perfectly monitor illegal short-selling, all domestic and international lending contracts must be unified into one system," adding, "Global institutions and financial authorities must participate in the computerization and approve monitoring, but this is realistically an impossible structure."

The Financial Supervisory Service plans to report on the "current status of illegal short-selling investigations and future response plans." The financial authorities will announce related details after the joint party-government meeting.

Meanwhile, the FSC completely banned short-selling in 2020 to mitigate volatility after the stock market plunged due to the COVID-19 crisis. In 2021, as the market stabilized, short-selling was allowed only for KOSPI 200 and KOSDAQ 150 stocks. However, this year, controversies over short-selling have arisen mainly in the secondary battery sector, and with the FSS uncovering illegal short-selling practices by global investment banks (IBs), short-selling has once again become a major topic in the market.

Amid this, a National Assembly public petition related to "illegal short-selling" met the requirements and was submitted as an agenda item to the National Assembly standing committee. As public attention grew, pressure for a "temporary ban on short-selling" increased, mainly from People Power Party lawmakers, leading the FSC to temporarily ban short-selling entirely for eight months starting from the 6th. A financial investment industry official emphasized, "While discussing institutional improvements, various voices including the positive functions of short-selling should be heard," adding, "It is necessary to freely discuss the positive functions of borrowed short-selling allowed by law, the realism of computerization, and the differences between lending contracts and stock loan agreements during this opportunity."