Financial regulators remain cautious on short-selling

Kim So-young, vice chairman of the Financial Services Commission (FSC), speaks during a press conference held in central Seoul on Friday. [FSC]

Financial regulators vowed to concentrate all their policy capacity towards advancing the capital market to “quantum jump” to the next level.

But they continue to remain “cautious” on the full resumption of short-selling.

In a press conference held in central Seoul on Friday, Financial Services Commission (FSC) Vice Chairman Kim So-young said the full resumption of short-selling “is among the assignments in advancing the market in a long term."

"We haven't clearly declared what we will do about short-selling”

The authorities banned short-selling in March 2020 to lift the market that collapsed following the pandemic.

It was partially resumed in April 2021, and has stayed that way since.

Short-selling is one of the criteria the global index provider Morgan Stanley Capital International (MSCI) considers when determining whether a country constitutes a developed market.

In an assessment last June, the MSCI said Korea’s financial market restricts short-selling, lacks information translated into English and does not have an offshore currency market for the won.

“We are continuously in talks with MSCI.” Kim added, explaining that although “we don’t know the timing” of when Korea will be upgraded by MSCI from an emerging market to a developed market, "the possibility will grow in the future."

Financial authorities announced a list of measures earlier this year that meet MSCI's assessments.

Foreign investor registration, required of foreigners trading any kind of security in the local market, will be abolished this year.

Companies will also be encouraged to determine dividend amounts before selecting who will receive payouts to improve the dividend system.

English disclosures will gradually be required starting from next year.

Korea saw rapid economic growth in the past, but the growth of the stock market has been relatively weak because its structure wasn’t sufficiently advanced, according to Kim.

The average return rate for Korean securities over the past decade was 1.9 percent, far lower than the United States (12.6%), Taiwan (10.3%), Japan (5.9%), China (5.5%) and Europe (5.2%), according to the FSC.

The changes will help create a virtuous cycle that enables investors to earn money, which will activate investment, helping companies to better raise funds. This in turn will lead to economic growth and further improve stocks, Kim added.

The FSC also noted that recent guidelines on security tokens aimed not to regulate but to allow their issuance and circulation.

“Since they were securities, I believe we were already regulating security tokens,” said Kim.

He added that a bill on non-security tokens is expected to pass soon, possibly within this year.

BY JIN MIN-JI [jin.minji@joongang.co.kr]