'Aim of short-selling ban extension is to woo voters'

Gettyimagesbank

By Anna J. Park

Financial authorities announced earlier this week that a ban on short-selling will be extended until early May, responding to an outcry among retail investors over the resumption of the trading practice viewed by many here as favoring only foreign and institutional investors.

From May 3, short-selling will be partially allowed again on 200 blue-chip companies out of 917 listed firms on the benchmark KOSPI and 150 companies out of 1,470 listed firms in the tech-heavy KOSDAQ. The short-selling ban will remain in place on other listed companies.

However, this compromise remedy does not seem to satisfy anyone.

Those who are vehemently against the short-selling system in Korea argue that the KOSPI 200 and KOSDAQ 150 companies account for around 88 percent of the benchmark index's market capitalization and about the half of the tech-heavy index. Put together, these companies account for about 15 percent of all listed firms in terms of number, but they take up more than 82 percent of the combined market cap of the KOSPI and KOSDAQ.

Opponents also stressed that most companies which have been targets of short-selling so far, such as Celltrion, are still included in the list of companies subject to resumed short-selling.

They also criticize the timing of the resumption. A retail investors' association ― the Korea Stockholders Alliance ― stressed that delaying the resumption of short-selling by seven more weeks, from mid-March to early May, serves to benefit the ruling party and the government during the by-elections on April 7. The upcoming vote, which will determine the new mayors of Seoul and Busan, is seen as a gauge of public support for the embattled ruling party.

“To put it bluntly, the delay is simply for election purposes,” Jung Eui-jeong, head of the Korea Stockholders Alliance said. “If blue-chip companies' prices go down with the resumption of short-selling (starting in early May), other companies cannot escape from the bearish influence from them, as they're all linked in index-tracking financial products.

“Why don't they just resume short-selling immediately after the election? Could lifting the short-selling ban then be too obvious and end up exposing their motive? Anybody can see why they chose early May as the resumption date,” a retail investor said.

Yet financial experts view that the resumption of short-selling is necessary, adding that they welcome the efforts of authorities to improve the system, while acknowledging that the playing field could become a bit more even for retail investors.

Financial authorities said some qualified retail investors will be able to engage in short-selling with more ease than before, while punitive measures and supervision will be strengthened to root out illegal short-selling practices like naked shorting.

According to a study by the Korea Capital Market Institute, stock market growth rates after the COVID-19 market plunge last March between countries that banned short-selling and those that did not ban the practice do not show significant differences.