Resumption of short-selling politicized ahead of April election - Korea Times
The Korea Times

Settings

ⓕ font-size

  • -2
  • -1
  • 0
  • +1
  • +2

Resumption of short-selling politicized ahead of April election


gettyimagesbank
gettyimagesbank

By Lee Kyung-min

A ban on short-selling, an emergency measure put in place in March 2020 to help create a floor for the then-plummeting stock market at the beginning of the COVID-19 pandemic, is increasingly becoming a political issue ahead of the upcoming by-elections in April.

Ruling party lawmakers are stepping up their push for an extension of the ban set to expire March 15, despite Monday's announcement by the Financial Services Commission (FSC) that made clear it will allow the resumption of the financial investment method.

Whether the financial authorities will make a policy course correction remains to be seen as the FSC has yet to produce any material improvement in strengthening the punishment for illegal short-selling and granting greater accessibility for individual investors to the financial investment method.

Short-selling refers to the sale of borrowed shares with the expectation of earning profits from a price fall when the shares are bought back at a lower price. It is widely used by foreign and institutional investors seeking leverage to net greater gains.

Rep. Yang Hyang-ja of the ruling Democratic Party of Korea (DPK) said the recent buying spree of Samsung Electronics shares by people in their 20s and 30s showed that patriotism exists in the financial market.

"The young investors are not just after making money, but investing in the future of Korea," she said during an interview with a local radio program. "Politicians have an obligation to create conditions, enabling them to make a bold and active investment, and a mechanism to protect them against overseas investors."

The resumption without fully resolving the fundamental, lingering doubts according to the DPK Supreme Council member will lead not only to extreme market confusion but also a massive backlash from individual retail investors.

"The government and the ruling party have been preparing an institutional mechanism to minimize the repercussions of short selling over the past year, but the year-long effort will not lessen investors' anxiety unless they are given a clear explanation," she said.

The remarks riddled with political spin targeting young voters are intended to play to people she considers to be a highly viable voter base ― a group of financial investors that long claimed the restored vibrancy in the stock market over the past few months will be undercut by the resumption.

These people say the Korean stock market will be reduced, yet again, to an easy investment method for foreign and institutional investors at the expense of many individual retail investors.

The Korea Stockholders Alliance representing over 21,000 investors said it will launch a campaign to abolish short-selling altogether, a decision it says is inevitable to "level the playing field," which the members believe is heavily distorted in favor of foreign and institutional investors.

"If the FSC fails to extend the ban with key problems left unsolved, individual investors will become the sole bearer of the costs incurred due to no fault of their own. Discussion must precede the resumption to accurately determine how short-selling has undermined the health of the country's economy and individual investors," a representative of the group said.

The collective move has already spread rapidly leading to an online petition on the Cheong Wa Dae website.

The petition reads as follows: "The stock market has not experienced any irregularities with the ban in place for the past year. What are the grounds for the financial authorities to resume something that only seems to help large investors?" It had over 80,000 signatories as of early Tuesday.

"The market operation has been stable, with money flowing into firms investors deem worth investing in from ones that are not. The government and the ruling party will face an unimaginable backlash, if the resumtion takes place as planned," the petitioner wrote.

Meanwhile, Samsung Electronics shares held by individual investors accounted for a record high of 7 percent of the total as of Jan. 8, outnumbering the 6.8 percent owned by institutional investors.



gettyimagesbank
gettyimagesbank

By Lee Kyung-min

A ban on short-selling, an emergency measure put in place in March 2020 to help create a floor for the then-plummeting stock market at the beginning of the COVID-19 pandemic, is increasingly becoming a political issue ahead of the upcoming by-elections in April.

Ruling party lawmakers are stepping up their push for an extension of the ban set to expire March 15, despite Monday's announcement by the Financial Services Commission (FSC) that made clear it will allow the resumption of the financial investment method.

Whether the financial authorities will make a policy course correction remains to be seen as the FSC has yet to produce any material improvement in strengthening the punishment for illegal short-selling and granting greater accessibility for individual investors to the financial investment method.

Short-selling refers to the sale of borrowed shares with the expectation of earning profits from a price fall when the shares are bought back at a lower price. It is widely used by foreign and institutional investors seeking leverage to net greater gains.

Rep. Yang Hyang-ja of the ruling Democratic Party of Korea (DPK) said the recent buying spree of Samsung Electronics shares by people in their 20s and 30s showed that patriotism exists in the financial market.

"The young investors are not just after making money, but investing in the future of Korea," she said during an interview with a local radio program. "Politicians have an obligation to create conditions, enabling them to make a bold and active investment, and a mechanism to protect them against overseas investors."

The resumption without fully resolving the fundamental, lingering doubts according to the DPK Supreme Council member will lead not only to extreme market confusion but also a massive backlash from individual retail investors.

"The government and the ruling party have been preparing an institutional mechanism to minimize the repercussions of short selling over the past year, but the year-long effort will not lessen investors' anxiety unless they are given a clear explanation," she said.

The remarks riddled with political spin targeting young voters are intended to play to people she considers to be a highly viable voter base ― a group of financial investors that long claimed the restored vibrancy in the stock market over the past few months will be undercut by the resumption.

These people say the Korean stock market will be reduced, yet again, to an easy investment method for foreign and institutional investors at the expense of many individual retail investors.

The Korea Stockholders Alliance representing over 21,000 investors said it will launch a campaign to abolish short-selling altogether, a decision it says is inevitable to "level the playing field," which the members believe is heavily distorted in favor of foreign and institutional investors.

"If the FSC fails to extend the ban with key problems left unsolved, individual investors will become the sole bearer of the costs incurred due to no fault of their own. Discussion must precede the resumption to accurately determine how short-selling has undermined the health of the country's economy and individual investors," a representative of the group said.

The collective move has already spread rapidly leading to an online petition on the Cheong Wa Dae website.

The petition reads as follows: "The stock market has not experienced any irregularities with the ban in place for the past year. What are the grounds for the financial authorities to resume something that only seems to help large investors?" It had over 80,000 signatories as of early Tuesday.

"The market operation has been stable, with money flowing into firms investors deem worth investing in from ones that are not. The government and the ruling party will face an unimaginable backlash, if the resumtion takes place as planned," the petitioner wrote.

Meanwhile, Samsung Electronics shares held by individual investors accounted for a record high of 7 percent of the total as of Jan. 8, outnumbering the 6.8 percent owned by institutional investors.


Lee Kyung-min lkm@koreatimes.co.kr


X
CLOSE

Top 10 Stories

go top LETTER

The Korea Times

Sign up for eNewsletter