KRX chief vows to enhance short selling system

Korea Exchange (KRX) Chairman and CEO Sohn Byung-doo speaks during an online press conference held at the Seoul office of the KRX, located on Yeouido in Seoul, Tuesday. / Courtesy of KRX

By Anna J. Park

Sohn Byung-doo, head of the Korea Exchange (KRX), the country's bourse operator, stressed that the KRX will do its best to correct and improve the current short-selling system, which has been criticized by local individual investors for creating an uneven playing field for them.

During a New Year online press conference ― the first since he was appointed KRX head in December ― Sohn vowed to strengthen the supervision of short-selling practices here to earn the market's trust.

“The KRX will collect various opinions from market participants to improve unreasonable and unfair systems, as we strengthen supervision over short sellers' practices and impose stricter punishment for illegal short-selling,” the CEO said.

He was cautious about specifically when and how the resumption of short selling would take place.

“It's up to the Financial Services Commission (FSC) to make a final decision about the resumption, and how exactly the system will be improved,” Sohn said.

Short selling has been suspended in Korea since last March, when the market crashed ― the benchmark KOSPI plummeted as low as 1,400 by mid-March ― amid the global pandemic shock. The initial six-month ban on short selling was extended to a year, but despite the financial authorities' repeated announcements that it would resume in March, the ban is likely to be prolonged by a further three months until June.

Retail investors have complained that the system is unfair as they're mostly barred from joining short-selling systems while institutions have access; reflecting this, key figures in the ruling party have recently been expressing strong opinions that short selling should first be revised and improved before being allowed reintroduced.

When asked if there had been too much pressure from politicians to again extend the ban, the KRX chief said he respected the opinions of all market participants.

“In the end, policies about the nation's capital market are a matter of interest for everyone. Thus, I think politicians' voices and opinions are a representation of some of those held by the public. The financial authorities will consider these opinions when making a final decision on the matter, as they take a central role in determining what should be reflected or not,” Sohn explained.

Focus on ESG principles

At a time when the KOSPI and Kosdaq have exceeded their significant thresholds of 3,000 and 1,000 points, respectively, Sohn highlighted that now is the time for qualitative improvements to the capital market.

“In order to maintain the sound level of growth in this new KOSPI 3,000 era, we need to focus on establishing a fair market order, improving companies' management structures, as well as raising shareholders' rights, so that any elements that contribute to the so-called Korea discount can be removed,” he said.

The CEO also said the KRX will focus on creating an environment to nurture innovative enterprises in the green and eco-friendly sectors, to complement the government's Korean New Deal initiative.

“The KRX will focus its capabilities on nurturing innovative businesses that will lead the economy in the post-pandemic world. We will improve listing procedures and systems for easier entry, while strengthening support measures for such enterprises,” he said.

The market operator will develop derivative products regarding Korean New Deal initiatives in the green and low-carbon sectors. Environmental, social and corporate governance (ESG) principles and the concept of socially responsible investments will also be emphasized in its management of listed companies.