FSC decides to monitor shorting

Korea’s financial authority will tighten monitoring on short selling to prevent instability in the local market.

In addition, Kim Seok-dong, chair of the Financial Services Commission, said yesterday he would use the national pension fund to stabilize the market if needed.

“My new message is to stave off further fluctuations triggered by short selling in the securities market,” Kim said Saturday.

Short selling is the selling of stock owned by a third party with the intention of purchasing it back at a lower price in the future, thereby making a profit on the stock’s loss.

The financial chief acknowledged the authority had failed to keep track of short sellers and their target stocks. “The authority will build a new system to do so from now on,” Kim said.

The FSC will introduce a reporting system for large quantities of short selling from the third quarter, according to Kim. Investors will report to the authority their short sales over a certain amount, he said.

“Although short selling serves as a lubricant, boosting transactions in the market, the market could become shaken by short sellers,” the chair said.

Kim said the plunge in Seoul’s Kospi last week was triggered by massive short selling.

However, he said the authority didn’t take any action to intervene last week because there was no need. “The FSC so far cut securities firms’ call money by six trillion won to calm the market, despite some backlash, which helped prevent a bigger plunge,” Kim said.

Call money is a loan issued by financial institutions, which should be repaid on demand, unlike regular loans that have maturities.

Kim said the authority considered putting a restriction on short selling last August, but didn’t take any action until the latest worries about Greece caused the Kospi to slide by more than three percent, finishing at 1,782.46 on May 18.

By Song Su-hyun [ssh@joongang.co.kr]