SEOUL — The chief of South Korea's primary financial watchdog supported the recent prohibition on stock short selling, positioning the ban as a corrective measure to equalize the investment landscape for individual traders.
According to Yonhap News Agency, the head of the agency, Lee Bok-hyun, on Monday stood by the decision taken by financial authorities to place a temporary hold on short selling until June 2024, an action that commenced on the same day. Lee contended that the suspension was essential for the implementation of a more refined short selling system and maintained the view that the local stock market is significantly impaired, citing over a hundred stocks that have been illegally short sold.
The enforcement of the ban followed revelations that two investment banks from Hong Kong allegedly engaged in illicit short selling of stocks worth approximately 56 billion won (US$43 million), fully aware that they would not secure the shares needed for sale. In light of these findings, the FSS has resolved to inspect all international investment banks operating within South Korea for potential involvement in such unlawful activities, commonly known as naked short selling.
Furthermore, the FSS has committed to establishing a new regulatory framework intended to prevent illegal short selling practices before the June 2024 deadline.
Beyond stock market regulation, Lee Bok-hyun openly criticized local banks for their "undeservedly large" earnings from high interest rates. He pointed out that the combined operational profits of these banks in the third quarter surpassed the earnings of industrial giants such as Samsung Electronics, LG Electronics, and Hyundai Motor. With bank interest revenues predicted to hit a record 60 trillion won this year, Lee questioned whether the banking sector's profits were a result of innovative efforts comparable to those in the semiconductor and automotive industries, which are known for their competitive edge in the global market.
This dual focus on market fairness and financial sector earnings highlights the regulator's broader concerns about equity and ethical practices within South Korea's financial landscape. The FSS's stance suggests a regulatory environment that favors increased scrutiny of financial institutions and market practices.