Dubious practice: Daewoo Securities Co employees work in front of monitors displaying the Korea Composite Stock Price Index or Kospi. Illegal short sales account for more than 20% of daily transactions in a number of South Korean stocks. — Bloomberg
SEOUL: South Korea will likely lift a ban on short selling by the end of the first half of the year as policymakers want to align its markets to global standards, Shinhan Financial Group Co’s chief executive says, indicating industry expectations that the heavily scrutinised pause won’t extend.
Regulators are ironing out kinks in how short-selling is conducted and monitored, and the authorities understand that they should “create an environment for investors to invest freely,” Jin Okdong, head of the nation’s No. 2 financial company, said in a Bloomberg televised interview with David Ingles in Seoul.
Jin, in his first media interview since taking the helm in March 2023, is weighing into a policy debate that raised questions over the nation’s commitment to elevate its stock gauges on global indexes.
Regulators surprised global funds in November when they suspended short-selling till June, a move welcomed by President Yoon Suk Yeol and retail investors ahead of ahead parliamentary elections later this year.
“The authorities also adhere to the principle that we need to allow investors to make decisions freely in order to move forward toward the global market,” Jin said.
“I think the inspection and supplementary work will be done quickly and I believe authorities share that perception.”
South Korea doesn’t allow naked short sales – an act of selling shares without borrowing them first – and it suspended all short-selling after it said some investment banks have broken the rules.
The Financial Supervisory Service said illegal short sales accounted for more than 20% of daily transactions in a number of stocks, and vowed to continue working on rooting out such practices.
The debate over short-selling is occurring just as policymakers seek to lure more investment flows and drive higher stock valuations.
It is extending trading hours for the won, and as late as March had even floated options to deregulate short-selling.
It is also seeking to convince MSCI Inc to categorise it as a developed stock market.
Separately, Shinhan is considering how it markets equity-linked securities, a structured fixed-income product that some lawmakers said was too risky for retail investors.
The Financial Supervisory Service said January it’s investigating 12 institutions to determine if there was any wrongdoing over their sale as notes linked to Chinese stocks are expected to see heavy losses.
Shinhan, whose subsidiaries include brokerage Shinhan Securities Co and retail lender Shinhan Bank, has stopped selling such products while it conducts a review, said Jin.
The reviews may result in Shinhan shifting sales duties from its retail counters to a wealth management channel, said Jin, who served as Shinhan Bank chief executive officer before heading the parent group.
Regulators had said it had uncovered several issues during a two-month inspection. — Bloomberg
