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The short selling debate is in full swing on the national stock market. As the 2030s hit the stock market and the KOSPI index rises to an all-time high, the arguments for and against are heated amid ‘overheated controversy’ and ‘bubble warning’. The problem is a short-term overheating phenomenon in which the words ‘spirituality’ (investment that even attracts the soul) and ‘debt investment’ (investment made with debt) spread. Short selling is an investment technique in which a borrowed stock is sold and then the stock price falls, bought cheaply, and repaid. Short selling became a major concern due to the argument that short selling could drive a drop in share prices. There is no analysis that short selling is a definite factor in the stock price decline, but it is a trading technique that is used primarily during a bear market. Now, the short selling policy has become a factor that greatly affects the market trend. On March 16, 2020, the financial supervisory authorities temporarily banned short selling for one year. At the time, when the stock price collapsed due to the impact of the crown, it was used as a countermeasure to prevent a fall. A year has passed and the KOSPI index has risen considerably compared to the time. The Financial Services Commission recently announced plans to lift the short selling ban and make it possible. But the giant ruling party put a stop to it. The situation is that ant investors, who are involved in ‘debt investments’, “ young people ”, pressure their passports, such as submitting a petition to “ maintain a ban on short sale ” to the Blue House out of fear to a drop in share prices, putting pressure on the Financial Services Commission to continue banning short selling (for now). Are short selling really bad? Should I keep banning?
[찬성] Information imbalance between individual and institutional investors … Means to correct the sloping playground
Although the short selling ban has been temporarily banned, the main reason for maintaining it is to correct the “crowded playground”, which is flagged as a structural problem in the stock market. The majority of institutional investors and foreign investors are the ones who actually use the short sale system, which is sold without shares. Financially powerful institutions and foreign investors are using short selling to realistically profit, but individual investors are not.
The proportion of foreigners among the short sale transactions in the Korean stock market from 2017 to 2019 was 74%. National institutional investors also accounted for 24%. The proportion of individuals was less than 1%. Foreigners, mainly institutional investors and domestic institutions, can easily borrow shares through the inter-institutional loan market. The scale reaches 67 trillion won. People can also borrow stocks as collateral for credit loans, but this is relatively limited. The Financial Services Commission established a policy to expand the “big stock market” so that people can sell shorts to resolve this imbalance, but nothing has changed. Still, individual investors are destined to be at a disadvantage.
It is also persuasive to argue that there is an “information imbalance” with individuals in the process of making a profit through short sales by foreign institutions and investors. There is also the possibility that it will be exploited for unfair transactions like price control, which does not easily end in stock prices. Although it was later judged as a mistake by a securities company, market shock was also a big problem in the 2018 Goldman Sachs large-scale short sale case. As it is not always easy to judge whether it is intentional or not, it is necessary to fundamentally limit any system that could be abused. It is also true that sometimes the short selling system itself is not a fault, but rather due to the negative opinion that this system does not provide equal opportunities for all participants in the stock market.
[반대] If only Korea is banned, international capital is expected to escape … System required as ‘global standard’
Individual investors misunderstand the short selling system and demand a ban and abolition. Short selling is a stock trading technique that has been around since the days of East India Co., Ltd. in the Netherlands in the 17th century. It was also systematically introduced in Korea in 1996. Now is the time to fix the system. We need to advance the stock market by taking care of it, not by prohibiting it. There are complementary factors, so correcting and supplementing is a completely different problem. If short selling is not acceptable, how do you recognize many derivatives or related investment techniques in the stock market? Short selling is like a credit loan that lends money to equity investors and works symmetrically. If short selling is not possible, would it be forbidden to buy stocks by borrowing money? The main theory of the securities academy is that it has the same character in that it borrows the assets of other entities for commercial gain.
It is impossible to temporarily ban it to support the stock market, but if the ban on short selling continues, Korea will become an “ isolated island ” completely in the global market. Among countries with a certain size or level of the stock market, only Korea and Indonesia have banned short selling. If short selling is prohibited, existing funds will be depleted instead of new foreign investment funds. The stock market is full of risks, but what kind of capital will come to invest in a market where “risk management” cannot be done correctly? The massive drain on global funds is big bad news that drives down national equity prices. You can’t be stupid about burning everything so soon to catch fleas.
Since March last year, when short selling was banned, the stock market is up 38%, and the United States, where short selling is allowed, has risen 26%. However, there are so many variables in the stock price fluctuation that there is no clear analysis that this difference is due to short selling. Rather, in 2008, when the financial crisis hit, the KOSPI index fell further despite the ban on short selling.
√ Think – Illegal short selling is a problem … We need to take strict measures, such as blocking illegal and timely activities.
![[시사이슈 찬반토론] Should we continue to 'ban short selling' of stocks?](https://img.hankyung.com/photo/202101/AA.24550290.1.jpg)
Short selling itself is not a problem, but illegal acts in the process, that is, the “illegal short selling”. While financial supervisory authorities have revealed their willingness to strictly illegally short sell, it is also due to technical limitations in detection and response that remain at the level of ‘strengthen penalties in case of detection’. Even small individual investors who file petitions as some sort of class action and adhere to the short selling ban may be a desire to somehow prevent the share price from falling.
However, there is no empirical evidence that the short selling ban causes share prices to fall, and there are arguments against that a financial crisis or stock market anomaly will drive the price of stocks down. the actions. The short selling system also has the net function of finding the “appropriate price.” Foreign prospects must also be taken into account when banning business methods that are used in most advanced markets and those that have already been done. It is no exaggeration to warn that international capital will leak out of the Korean stock market if short selling is prohibited. It is also a problem of global standards. In the end, maintaining the framework of the system, while preventing illegal and timely acts as much as possible, and taking strict measures in case of detection, are a complementary method. In addition to this, there are many more injustices in the stock market that must be prevented and compensated.
Heo Won-soon, Editorial Staff, The Korea Economic Daily [email protected]
