KRX chief to reform short-selling regulations for ordinary investors

Sohn Byung-doo, chairman of the Korea Exchange, speaks during an online press briefing on Tuesday morning. (KRX)

The chief of South Korea’s sole bourse operator on Tuesday pledged to strengthen pre-to-post management of short-selling -- a strategy of borrowing, selling and repurchasing stocks to return them to the lender -- and reform unfair systems and practices on the matter.

The nation’s financial watchdog previously announced it would be resuming short-selling from March 16, after first introducing a temporary ban in March last year, as the pandemic impact rattled the stock market. Local private investors have voiced concerns over the resumption as they claim that the reactivation of such trading practice could create market disruptions.

In the wake of resuming short-selling activities, the Korea Exchange will strengthen its monitoring system and improve infrastructures to catch unfair stock trading in early stages, the bourse operator’s chairman Sohn Byun-doo told reporters during online press briefing.

KRX will further seek measures to enhance accessibility for retail investors’ short-selling by “preparing for stock loan system reformation” to dissolve criticism where the domestic market is seen as an “uneven playing field” that foreign and institutional investors benefited the most while individual investors suffered from plummeting shares.

“To provide greater opportunities to small domestic investors, we have put forth all-out efforts. At the same time, we’ve approached to the matter cautiously since the (retail) investors have lower credit rating and risk-taking tendency, and less market information than institutions. They have a greater possibility of expanding reckless short-selling activities,” he added.

With the era of the main bourse Kospi reaching 3,000 points and tech-heavy Kosdaq reaching 1,000 points in the beginning of the year, the chairman highlighted the importance of protecting investors and establishing a fair market order, stressing now is the time for seeking the market’s qualitative growth.

“Kospi was able to cross the 3,000-point threshold not only because of the local stock market’s upbeat assessment resulted from the rise of exports and companies’ performances, but also due to retail investors’ greater market participation and soaring stocks of ‘Korean New Deal’ related sectors,” Sohn said.

“Considering the lingering uncertainty over COVID-19, the market may face an unexpected crisis. Therefore, we’ll put more strenuous efforts into qualitatively strengthening the market to prevent investors’ high expectations turning into disappointments. Boosting stable demand from foreign and institutional investors is necessary for a robust growth.”

By Jie Ye-eun (yeeun@heraldcorp.com)