Photographer: SeongJoon Cho / Bloomberg
Photographer: SeongJoon Cho / Bloomberg
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Retail investors eager to watch the stock rise have come to life damn for short sellers around the world.
In South Korea, the government is also crowding.
Lawmakers overseeing the country’s $ 2 trillion stock market are discussing plans to expand one of the world’s longest-selling short selling bans amid pressure from mom and pop players who drive more than two-thirds of their daily transactions.
Calls for a 10-month ban to be permanent are on the rise. More than 202,000 people have signed a petition urging President Moon Jae-in to make illegal short sales – crossing a 200,000 threshold that forces him to give an official answer. Moon’s prime minister has already done so called the “unwanted” practice.
While much of the financial world has watched every change in the struggle between retail investors and short sellers GameStop Corp., South Korea has quietly become a major battleground in the ongoing, back-to-back debate over the role of upward trading on the stock markets.
Retail Frenzy
With the daily pandemic trading, individual investors have overtaken Korean stock market institutions and foreigners
Source: according to Koscom Corp., which provides financial data from the Korea Exchange
Given the national elections early next year, political decision-makers in Seoul are reluctant to anger thousands of Koreans who have fallen in love with trading stocks during the pandemic. The head of a Korean retail investor support group called the short sale “bad” and staged a rally. protests against the practice outside government buildings. Meanwhile, the International Monetary Fund has called on South Korea to end its ban on short selling, saying it risks making the market less efficient and more difficult to cover.
“As financial conditions in Korea and the functioning of the market following the outbreak of Covid have now stabilized, we believe that there are conditions to reinstate this practice of short selling,” said Andreas Bauer, a fund official. virtual press conference on the Korean economy on Thursday.
Like other countries, South Korea saw its stock market decline in March as the pandemic intensified. The share prices then reached the bottom three days after the entry into force of the ban on short selling, helped by a flow of liquidity of the central bank and retail buying. The Kospi benchmark ended 2020 with a 31% increase, the best performance in the world after the Nigerian capital equivalent. Kospi has climbed another 6.8% so far this year.
While other markets, including France and Italy, have also imposed bans on short selling at the same time, South Korea is now the only country other than Indonesia that has remained restricted.
A research paper widely covered by the local media has contributed to fueling popular anger at short sellers. Authorized by professors at Hanyang University in Seoul, it showed that Korean short sellers – mostly foreign investors – made an average profit of $ 2 million a day from 2016 to 2019. Investors who traded in margin, most of them were retail bettors, losing an average of $ 900,000 a day.
“Short sellers are the Axis of Evil in Korea,” said Jung Eui-jung, executive director of the Korean Shareholders’ Alliance, citing the phrase. famous for US President George W. Bush. Jung is pressuring the South Korean government to ban short-selling permanently if it cannot find a way to make the practice “fair” for retail investors.
It is unclear whether political decision-makers will ever go that far. Previous market bans on short selling during the global financial crisis of 2008 and the European debt crisis of 2011 lasted only a few months in a row, although restrictions on bank stocks remained in place for several years.
In 2016, a ruling party MP tried to ban the short sale of shares in the Kosdaq index start-up, but failed. And in 2018, after Goldman Sachs Group Inc. was with a fine of 7.5 billion won ($ 6.7 million) for the so-called short sale, investors rushed to support petitions calling for a ban on short sales, but the number of signatures has never reached current levels .
For now, lawmakers are discussing a plan to maintain the ban place until June. It is also working on legislation to strengthen penalties for empty short sales – in which investors make a low bet without first borrowing shares – and will align short selling rules for retail and institutional investors.
“Some Koreans do not understand the mechanism of short selling and do not agree with the practice of selling something that he or she does not own,” said Lee Hyo-Seob, a researcher at the Korea Capital Market Institute. “It doesn’t help that the fines charged to institutional investors who trade or manipulate stock markets through short selling are so low.”
(Updates the number of people who signed a petition in the third paragraph)