It's too soon to fully resume short selling, FSS chief says

Financial Supervisory Service Gov. Lee Bok-hyun speaks at a press conference held in Yeouido, western Seoul, Thursday to celebrate his first anniversary in the office. [FSS]

It is still too early to review the full resumption of short sales of stocks, according to financial regulators Thursday.

Risks in the financial market remain amid high interest rates and investigations into illegal short selling, Financial Supervisory Service (FSS) Gov. Lee Bok-hyun said at a press conference in Yeouido, western Seoul.

The event was held to celebrate the first anniversary of his term.

“Considering the situation, there is a need to tighten” control, said Lee. “We will be able to review the matter once the market settles and anxiety is relieved.”

Short selling was temporarily prohibited in Korea in March 2020 as the market melted down following the outbreak of the Covid-19 pandemic.

Short selling of Kospi 200 and Kosdaq 150 index stocks was resumed in May 2021. However, short selling stocks outside of the indexes remain prohibited.

Resuming short selling is one of the changes required by New York’s Morgan Stanley Capital International (MSCI) for Korea to be elevated into the developed market index.

The country currently sits in the emerging market index.

In an interview with Bloomberg in March, Lee said the regulators will try to review ways to resume short selling this year if uncertainties in the financial market are resolved in the coming months.

Lee said strong penalties need to be imposed on illegal activities to build trust in the capital market for the Kospi to develop.

The Kospi is down 23 percent from a peak of 3,316.08 reached in June 2021.

Strict penalties on illegal activities, like stock manipulation, are a “policy framework to recover trust and raise the attractiveness of the capital market.”

Financial authorities and the prosecution declared war against market manipulation last month to curb illegal activities.

The FSS and Financial Services Commission (FSC) are investigating a stock manipulation scandal that dragged down the prices of eight stocks for almost a week in April.

“Our financial market is at the starting line to leap into the advanced market,” Lee added while stressing the importance of fairness and credibility.

The FSS will take preemptive measures to ease anxiety on project financing, eradicate financial fraud and actively support the overseas expansion of financial holding companies through their strengthening of capacity in investment banking.

Lee attended an investor relations event hosted by Korean financial holding firms in Singapore in early May to attract overseas investment.

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