"Explanation of Short Selling Computerization Within a Month or Two"
Confirmation of Parallel Differences in Short Selling Opinions
Foreign Investors Say "Korea's Rise Depends on Lifting Short Selling Ban"
The "Open Discussion with Individual Investors" event, hosted by the Financial Supervisory Service and the Korea Exchange, was held on the 13th at the Korea Economic Association in Yeouido, Seoul. Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering the opening remarks. During the discussion, various opinions were exchanged on topics including the computerization of short selling and other issues related to the Korean stock market. Photo by Heo Young-han younghan@
The Financial Supervisory Service (FSS) is strengthening monitoring related to suspicions of illegal short selling and high-frequency trading by liquidity providers (LPs) of exchange-traded funds (ETFs).
On the 13th, the FSS announced that it held an "Open Discussion with Individual Investors" at the Korea Economic Association Conference Center in Yeouido, Seoul. About 30 individual investors attended, including writer Park Soon-hyuk, known as the "Battery Ajusshi," and Jung Ui-jeong, president of the Korea Stock Investors Association.
The financial authorities temporarily suspended all short selling from November 6 last year to June 28 this year. However, individual investors have claimed that short selling by market makers (MMs) or LPs has increased and have demanded a complete ban on their short selling as well. The FSS stated in December last year that these suspicions were found to be unfounded.
At the discussion, writer Park and others again requested the FSS to investigate, alleging that MMs and LPs collude to place short sell orders at low prices to manipulate stock prices.
In response, Hwang Sun-oh, deputy director of the FSS, said, "LPs need to short sell stocks to hedge risks, so their short selling is exempt from the ban." He added, "Although no illegal activities have been detected so far, we will strengthen monitoring."
Director Lee also responded, "We reviewed the situation in December last year, but since it could happen again, we will not be satisfied with past inspections and will re-examine recent cases."
Director Lee stated that he would provide detailed explanations about the establishment of a real-time short selling blocking system within a month or two.
The task force (TF) for building a "Naked Short Selling Computer System," led by the FSS, is discussing ways to implement a system that can block naked short selling in real time, alongside the development of internal computer systems for institutional investors engaging in short selling.
Director Lee elaborated, "Regarding the computerized system, the Financial Services Commission (FSC), the FSS, and the Korea Exchange have reviewed 4 to 5 measures to effectively and preemptively block naked short selling, and are further examining 2 to 3 of these."
Meanwhile, the perception gap between institutions and individual investors regarding the necessity of the short selling system remains unresolved. A foreign fund investor who participated in the discussion via video said, "If a new system is introduced, the short selling market will be regulated more strictly than in advanced markets," adding, "If the short selling ban is lifted, the KOSPI could continue its rally from the current level."
Writer Park criticized, "For short selling to properly perform its price discovery function, a fair competitive environment must be guaranteed. Currently, the environment is structured with collusion among analysts and hedge funds, so in Korea, it functions more as price distortion than price discovery." President Jung also emphasized, "Currently, short selling is a social evil and a public enemy," and stressed, "Real-time computerized short selling is urgently needed to prevent harm to the public."
In response, Professor Yoon Sun-jung of Dongguk University suggested, "Since it is difficult to centrally manage all securities lending transactions, an alternative could be for securities firms that manage their own computer systems and execute short selling orders to verify borrowed shares." He added, "Regarding sanctions, it is necessary to enhance effectiveness by applying internal control-related job responsibilities and focusing sanctions on employees rather than companies."
Professor Kang Hyung-gu of Hanyang University added, "Domestic securities analysts do not issue 'Sell' reports but provide one-on-one tutoring to institutions or foreigners," and said, "Securities research centers should operate independently and ethically, and securities firms issuing important event-related reports should refrain from related short selling."
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