Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
FSS vows to align with global short-selling rules in talks with Hong Kong investors
Financial Supervisory Service (FSS) Gov. Lee Bok-hyun speaks during an investor relations event at a hotel in Hong Kong, Wednesday. Courtesy of FSS
By Lee Yeon-woo
Korea appeals 'K-Finance' to institutional investors
HONG KONG — Financial Supervisory Service (FSS) Gov. Lee Bok-hyun addressed concerns from Hong Kong-based institutional investors over Korea's short-selling ban, acknowledging the urgency of aligning the system with global standards.
"Korean capital markets aim to advance and align with international standards, but a total ban on short selling, not just on specific stocks, could be viewed as an embarrassing issue. Once our system is updated in the first quarter of next year, we plan to adopt a more advanced market framework similar to those in Hong Kong, London and New York," Lee said during an investor relations event held in Hong Kong, Wednesday.
The event — co-hosted by major financial companies like Shinhan Financial Group, Hana Financial Group, Korea Investment & Securities and Korean Reinsurance Company (Korean Re) — aimed to share plans for promoting Korea's capital markets, and gather feedback from foreign investors.
According to the FSS, 230 participants from 102 institutions attended, including global firms such as HSBC, CITIC CLSA and Goldman Sachs. Officials from Seoul and Busan also highlighted their respective cities' role as economic hubs.
Lee stated that one of the primary reasons for visiting Hong Kong was to clarify misunderstandings about Korea's short-selling ban and to shed light on the unique characteristics of the Korean capital markets.
The country implemented a blanket ban on short selling in November 2023 after uncovering a series of naked short-selling violations involving 14 global investment banks. The practice, referring to the practice of selling stocks without first borrowing or owning them, is illegal in Korea.
Although short selling is a common practice globally, it has faced strong resistance from Korean retail investors, who account for a significant portion of the country’s stock market. Retail investors have long contended that short selling creates an uneven playing field, disproportionately benefiting institutional investors. In response to these concerns and to curb illegal activities, the FSS is developing an electronic monitoring system, set to launch in the second quarter of this year, to enhance oversight and prevent future violations.
"We recognize that market participants engaging in short selling are motivated by economic gains. However, if penalties outweigh the potential benefits, they may opt not to participate," Lee said during a press briefing after the event.
Officials speak to the audience about the Korean financial market during an investor relations event at a hotel in Hong Kong, Wednesday. From left, Carlyle Head of Asia Corporate Strategy Lee Soo-yong, Korea Investment & Securities CEO Kim Sung-hwan, Hana Financial Group Chairman Ham Young-joo, Financial Supervisory Service (FSS) Gov. Lee Bok-hyun, Shinhan Financial Group Chairman Jin Ok-dong and Korean Re CEO Won Jong-gyu. Courtesy of FSS
He distinguished between deliberate, prolonged and organized cases of naked short selling and those arising from mistakes or regulatory ambiguities. "In resolving such cases, financial authorities will prioritize administrative measures over criminal charges, focusing on establishing reasonable and practical standards," he said.
"The introduction of an electronic monitoring system will significantly reduce unintentional violations caused by negligence. We encourage feedback from market participants to refine and improve these regulations," he noted.
Foreign institutional investors also advocated for the resumption of short selling.
"This (resumption of short selling) is something that we believe would allow investors to better hedge their market risk, facilitate price discovery and increase market liquidity, and it would help facilitate Korea's much-deserved inclusion in the MSCI (Morgan Stanley Capital International index) as a developed market and attract more foreign investor fund flows into one of Asia's most dynamic economies," said Peter Stein, CEO of Asia Securities Industry & Financial Markets Association, adding that the institution is closely collaborating with the FSS regarding the issue.
At the event, the FSS also analyzed the causes of the undervaluation of Korean stocks and introduced policies to address the issue, citing factors such as insufficient shareholder returns, inefficiencies in trading infrastructure, improper market practices and challenges faced by international investors.
"Many Korean companies have prioritized growth-oriented strategies, such as reinvesting retained earnings. While they excel globally, some have acted against shareholder interests by practices like splitting off subsidiaries for separate public listings," Lee said.
The Corporate Value-Up Program, a key initiative aimed at enhancing corporate governance, was also highlighted, emphasizing Korea's commitment to policies that ensure shareholders receive fair returns.
"As Korea’s financial industry, centered in Seoul and Busan, continues to grow, we ask for your continued interest and support in helping Korea strengthen its presence in the global financial market, alongside other key players like Hong Kong," Lee said.
The open event in Hong Kong followed a meeting with Vietnamese financial authorities on Monday and will continue with a meeting with Indonesian authorities on Friday.