FSS chief says preparations under way to inspect brokerages for illegal short selling

SEOUL, Aug. 16 (Yonhap) -- South Korea's financial regulator chief on Tuesday underlined the need to keep tabs on illegal stock short selling, saying that his agency is preparing to inspect brokerages where such transactions have been concentrated during times of stock declines.

Short selling is a trading technique in which investors sell stocks they borrowed on expectations that share prices will fall. When the prices decline, they can make profits by buying back the stocks at lower prices.

Supporters say that short selling is necessary to increase liquidity in the market, but critics have called for a ban as it causes excessive market volatility.

"I have been wondering why short selling has been concentrated on stocks held by certain brokerages and through certain channels," Lee Bok-hyun, head of the Financial Supervisory Service (FSS), told a group of reporters in Seoul. "I thought if other market players want to participate, then there shouldn't be any such herd behavior."

"Among other things, we are seeing the need to inspect brokerages or institutions where short selling has been concentrated in times of stock falls. We are drawing up plans in detail on how to conduct the inspection," added the former prosecutor who took office as FSS chief in June.

In March 2020, South Korea temporarily banned stock short selling for six months as part of efforts to stabilize the stock market that tumbled amid the fast spread of the coronavirus. In early May last year, the government partially lifted the ban after several extensions of restrictions.

Calls for tightening regulations on short selling have gained traction as the stock market has suffered a sharp decline this year amid worries over global inflation, monetary tightening and possible economic slowdown.

In February, authorities fined Korea Investment & Securities Co. 1 billion won (US$764,500) as it did not specify the short selling of some 150 million shares, including those in Samsung Electronics Co., over the past three years

Last month, Kim Joo-hyeon, head of the Financial Services Commission, another top financial regulator, left open the possibility of banning short selling, saying such a decision depends on market situations.

Asked what will be his top priority until the end of this year, the FSS chief said that he will focus mostly on securing stability in the financial market by closely monitoring the health and liquidity situations of financial firms.

"By the end of this year, the first priority is to remove market anxiety about such things as soundness," he said.

kokobj@yna.co.kr
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