Celltrion shares still shorted despite KRX ban

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Celltrion shares still shorted despite KRX ban

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Celltrion, the pharmaceutical company that has decided to move from the tech-heavy Kosdaq to the main bourse, Kospi, in the hopes of ending its vulnerability to short-selling, is once again victim to such practices.

Celltrion’s stock value on Thursday morning tumbled immediately after the market opened, and ended the day 8.8 percent lower than the previous day to close at 175,200 won ($154.7), resulting in a loss of everything it gained this week.

Luckily on Friday, Celltrion’s stock closed 1.60 percent or 2,800 won higher than the previous day at 178,000 won.

But Thursday’s close was surprising to investors since the sole stock-market operator, the Korea Exchange, banned short-selling that day after labeling it excessive since the amount of shorting on Tuesday was 8.2 times larger than the average over the last 40 days.

During that time, shorting, which is when an investor sells financial instruments they do not own and repurchases them to profit from the decrease in the asset’s price, made up 5.1 percent of all Celltrion’s transactions in shares.

On Sept. 25, financial authorities decided to suspend Kosdaq stock transactions for a day whenever shorting increases more than five times, or when it accounts for more than 5 percent of all transactions in the last 40 days.

But investors were shorting on Wednesday even though the KRX suspended it.

In fact, 250,164 shares, worth 50.5 billion won, were short-sold. This is almost equivalent to the number made before the suspension. On Monday, 53.1 billion won worth of the company’s shares were short-sold, while on Tuesday, 75.2 billion won were short-sold.

Shorting orders surged Thursday morning, when the suspension was lifted - making up 318,366 shares worth 58.8 billion won.

The recent shorting occurred at the end of last month, when the company’s shareholders voted in favor of relocating Celltrion stock from the Kosdaq to the Kospi to protect it from such practices.

But according to the KRX, under the current regulations, brokerage firms that are shorting in order to hedge their investments are exempt.

The stock operator said on Wednesday Celltrion’s futures transactions hit an all-time record at 480 billion won, and as a result shorting in order to dispersing risk has also increased.

Including Celltrion, six stocks were suspended from shorting for a day, but five saw investors going short anyway.

“On this day, it seems the proposal by Morgan Stanley to sell Celltrion’s shares seemed to have influenced investors to sell the company’s shares,” said Lee Hye-rin, a KTB Investment & Securities analyst.

“It seemed like a mechanical adjustment due to the recent spike in the company’s share value,” said Eom Yeo-jin, an analyst at Shinyoung Securities.

But the pharmaceutical company’s minority shareholders expressed deep concern over the authority, claiming it has confused people into thinking all investors were banned from going short.

They claimed that allowing exceptions harms the fundamental objective of short-selling regulations.

“If they can’t regulate short-selling, the government needs to work on any flaws that are found while investigating the possibility of violation,” said Park Chang-ho, who heads a community that is seeking better short-selling investments. “The mistrust of the government over short-selling regulations are evidently growing, as it is only taking action after losses take place.”

The financial authority said there were no regulatory violations regarding Celltrion, as is it an exception. But it added that it remains open to the possibility of investigating any illegal investments practices.

“If there is any suspicion that the regulations have been violated, we will investigate accordingly to our procedure,” said Choi Yoo-sam, head of the capital market investigation team at the Financial Services Commission.


BY CHO HYUN-SOOK, LEE SAENURI [lee.hojeong@joongang.co.kr]

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