Lee Min-hyung joined The Korea Times in 2014 and has worked as a journalist mainly in Korea’s finance, tech and automotive industry. He specializes in content creation, breaking news and in-depth analysis currently on transportation and mobility. You can reach him via mhlee@koreatimes.co.kr.
Dispute on short-selling resumption rekindled amid gov't bid for MSCI inclusion
gettyimagesbank
By Lee Min-hyung
By Lee Min-hyung
The government is in an escalating dispute with retail investors over the complete resumption of short-selling here.
The controversy centers on whether financial authorities will allow short-selling in the local stock market by May, as the move will help Korea get its name on the Morgan Stanley Capital International (MSCI) watch list in June.
Placement on the watch list is the first step for the stock market to win the much-anticipated “developed market” status from MSCI, possibly as early as 2024.
But retail investors have for years cried foul over the trading practice, strongly denouncing the government's move to resume the short-selling of Korean shares. Individual investors argue that the short-selling resumption will only benefit institutional and foreign investors due to their dominant market influence here.
For now, the ban on short-selling has only been partially lifted on stocks in the KOSPI 200 and Kosdaq 150.
Short-selling was temporarily banned in March 2020 after the local stock market collapsed amid then-escalating fears of the COVID-19 outbreak. With the market bouncing back above its previous high, the government partially resumed short-selling in May 2021.
But as the MSCI urges the Korean government to resume shorting completely here, the government is in a growing dilemma over how to settle complaints from retail investors.
The issue is also a hot potato for the presidential candidates.
Yoon Suk-yeol, the presidential contender of the main opposition People Power Party, pledged to step up monitoring for any illegal signs of short-selling.
“Any investors caught manipulating stock prices through short-selling will receive a criminal penalty,” he said. “I will also set up an organization monitoring naked short-selling around the clock.”
Ruling Democratic Party of Korea presidential candidate Lee Jae-myung also promised to improve to protect retail investors even if short-selling is resumed.
“Abolishing short-selling is against the government's moves to help Korean stock markets get MSCI developed market status,” Lee said. “Foreign investors will also leave local equity markets if the authorities bans shorting here.”
Lee pledged to revise existing legal systems to enhance monitoring against price manipulation even after the complete resumption of short-selling.
Korea Exchange Chairman Sohn Byung-doo also shared his views that short-selling should be resumed to ensure timely inclusion in the MSCI.
“Other countries did not introduce any restriction on short-selling even after the pandemic began, but we did so,” he said during a recent press conference. “It is hard for us to understand why we have to keep restricting short-selling even at a time when we seek to win the developed market status from the MSCI.”