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By Lee Kyung-min
Foreign investors accounted for about 90 percent of short-selling transactions in the first three trading days following the partial lifting of restrictions on the investment method on May 3, data showed Friday.
Many retail investors say this is a strong indication that foreign investors alongside institutional investors are allegedly involved in manipulating the stock market for hefty gains.
Short selling is widely used by foreign and institutional investors for profits after selling borrowed shares at a lower price based on the view that the domestic stock markets will remain bearish at the expense of retail investors.
Further fanning the concerns are market expectations that demand for short-selling by foreign investors will increase as those who sold exchange-traded funds (ETFs) short will return.
According to a report by Yuanta Securities, foreign investors have used ETFs for short selling in order to sidestep the ban over the past year. This is indicated by the MSCI (Morgan Stanley Capital International) Korea ETF having seen a steep fund outflow in April after its borrowed accounts peaked to an all-time high of 15.1 percent in 2020. The volume of the borrowed funds began to soar in March 2020, immediately after the ban took effect.
Data from the Korea Exchange showed the trading volume of short selling by foreigners in the KOSPI in the first three trading days of this week surpassed 1.95 trillion won ($1.74 billion), accounting for about 87.8 of the total ― 2.2 trillion won. The figure for short-selling traded by foreigners in the secondary, tech-heavy KOSDAQ market in the same period was 521.2 billion won, accounting for around 81.8 percent of the total.
Retail investors claim that foreign investors seeking gains from short selling are being aided by double standards that need to be revised.
Foreign and institutional investors are allowed to borrow shares for short selling without any time constraints or interest obligations, while retail investors have to pay the borrowed shares back within 60 days of borrowing at 2.5 percent annual interest.
This means large investors can wait until after they realize gains without any significant additional cost, unlike retail investors who must pay the shares back even when they suffer losses.
"The related law should be revised to require all investors to pay back the borrowed shares within 60 days of borrowing, the least of the regulation needed to guarantee a level playing field," read a petition posted on the Cheong Wa Dae website. It was signed by over 56,000 people.
