Market watchdog strengthens grip on illegal short selling

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The headquarters of the Financial Supervisory Service in Yeouido, west of Seoul (Yonhap)

The Financial Supervisory Service, the South Korean market watchdog, on Tuesday pledged to step up its oversight of illegal short sales this year to promote fair competition in the market.

“We will step up inspections on illegal short selling practices by strengthening the working capacity of our special investigative team tasked with detecting securities fraud,” the FSS said in its 2021 policy plan. The FSS has a team of internal investigators responsible for investigating financial crime cases under the supervision of the prosecution. Unlike the prosecution and the police, however, the team does not have the power to prosecute.

The remarks came amid a harsh reaction from inexperienced day traders to the government’s plan to resume short-selling stocks on the Kospi 200 and Kosdaq 150 from May 3.

An online petition on the Blue House website demanding an outright ban on short selling has garnered more than 200,000 signatures in 30 days – a condition that requires a senior government official like the chairman of Financial Services Commission Eun Sung-soo responds.

Short sellers sell stocks borrowed from a stock with the belief that the price will go down. Korean retail investors have long criticized widespread irregularities by foreign and institutional investors in the market, such as naked short selling – short selling a stock or other marketable security without first borrowing the security.

Ahead of the FSC’s action plan to control the surge in household debt expected for next month, the monitoring agency has also committed to imposing stricter rules for the debt service ratio, or DSR – the maximum amount of credit loans allowed for an individual relative to the disposable income of the household. .

“The envisaged program to reduce household debt will be implemented while (securing the benefits) of lending services to low-income families and small traders affected by the virus,” the FSS said.

Meanwhile, under the slogan “inclusive finance,” the FSS plans to urge traditional lenders and online-only banks to extend their loan products to borrowers with low credit scores.

In anticipation of post-COVID-19 market shifts in which companies are placing more emphasis on ESG (environment, social and governance) values, the authority will develop a stress test model that assesses the climate-related risks of financial systems, through various partnerships with oversight bodies in major economies, officials said.

By Choi Jae-hee ([email protected])


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