[The Editors' Verdict] The Courage to Be Criticized Over Short Selling

Endless Conflict Surrounding Short Selling
FSS Chief Takes the First Step to Address Doubts and Distrust
Someone Must Communicate for a Social Solution

"We have to do it even if we get criticized."

When a reporter recently asked Director Lee Bok-hyun of the Financial Supervisory Service (FSS) whether they would hold another short-selling debate, he said without a second's hesitation that they must do it. Until investors' distrust is resolved. In fact, the reporter thought he might feel burdened because the previous debate had been quite contentious. However, he conveyed his intention to continue communicating with individual investors, even if it meant "getting criticized."

The "Open Discussion with Individual Investors" event, hosted by the Financial Supervisory Service and the Korea Exchange, was held on March 13 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 short selling, as well as various subjects concerning the Korean stock market. Photo by Heo Young-han younghan@

On the 13th of last month, Director Lee held an "Open Debate with Individual Investors" at the Korea Economic Association Conference Center in Yeouido, Seoul, listening to opinions related to short selling. Controversy followed. Since short selling is a matter of regulation, there was debate over why the Financial Supervisory Service, not the Financial Services Commission, hosted the debate. It was understandable that Jeong Ui-jeong, the representative of the Korea Stock Investors Association, attended as a civic group leader to represent individual investors. However, there was much talk about inviting "Battery Ajusshi" (Mr. Battery) Park Soon-hyuk, a writer. He had previously criticized the FSS director, so some questioned whether Director Lee needed to hand him the microphone and sit face-to-face. There were concerns that the financial authorities and related institutions might appear to be swayed by those who constantly complain about short selling.

Most capital market experts criticize the temporary ban on short selling as populism for election purposes, considering the positive functions of short selling. The reporter also voiced criticism through articles and columns. This was because focusing on the positive functions of short selling, such measures that go against global capital markets hinder the advancement of the Korean market.

Recently, as the meme stock craze swept the U.S. market, only one thought crossed the reporter’s mind. The increase in meme stocks is by no means good for the stock market. It proves that investments are not made rationally. Without "rationality" in the market, bubbles form and speculation aiming for quick riches dominates. However, in the Korean market, short selling?which functions to prevent such bubbles?has been temporarily banned, which is a serious issue. Isn’t it true that the surge in politically themed stocks has been particularly intense in connection with the short-selling restrictions?

Therefore, the reporter was curious about Director Lee’s intention to continue the short-selling debates. The words he emphasized were communication and trust. Because investors’ trust in the market is very low and there are many complaints about short selling, restoring investors’ trust in the short-selling system through communication is a priority.

In recent years, short selling has never been such a controversial topic. Upon reflection, this is closely related to the rapid increase in the proportion of individual investors. The Korean market is unique in that the participation rate of individual investors is exceptionally high compared to the rest of the world. They raise their voices saying they suffer losses due to short selling and illegal short selling. Director Lee also linked the high proportion of individual investors as a reason to continue the debates.

Someone must listen to why individuals raise their voices against short selling and answer their questions to resolve distrust. They must actively explain the short-selling system improvement plans and efforts to eradicate illegal short selling. It does not matter who hosts the debate. What matters is leadership with the courage to act even if criticized. In situations where conflicts reach their peak, a "social solution" is important. The first step to that solution is communication.

If investors’ distrust is not resolved, the short-selling system improvement plan will inevitably be only half-baked. Although the two debates previously held by the Korea Exchange did not progress and merely repeated earlier discussions, there is a clear reason to endure such efforts. Only by resolving misunderstandings and suspicions through social solutions can short selling be fully resumed without problems.