Gov't balks at complete resumption of short-selling - The Korea Times
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Gov't balks at complete resumption of short-selling

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Financial Services Commission (FSC) Chairman Koh Seung-beom speaks during a press conference at the Government Complex Seoul, Friday. Courtesy of the FSC
Financial Services Commission (FSC) Chairman Koh Seung-beom speaks during a press conference at the Government Complex Seoul, Friday. Courtesy of the FSC

By Park Jae-hyuk

The government remains uncertain about the complete resumption of short-selling on the Seoul bourse, despite plans to resume talks with the MSCI, for the Korean equity market to be classified by the American index provider as a "developed market."

"We have yet to discuss the timing of the resumption of short-selling with the finance ministry," Financial Services Commission (FSC) Chairman Koh Seung-beom said in a press conference, Friday.

Korea's short-selling ban on small-cap stocks, which has continued since the outbreak of the COVID-19 pandemic, was mentioned in the MSCI's latest market reclassification review in June, as a reason for the index provider to keep the country's equity market classified as "emerging."

"There is no timeline on the potential resumption of short-selling for the remaining securities in the Korean equity market," it said at that time. "As such, Korea will experience a deterioration in the rating for short-selling, given that current limitations remain in place for a number of securities."

Considering that Deputy Prime Minister and Finance Minister Hong Nam-ki told executives from global financial firms in London last month that the relevant ministries would review ways to upgrade Korea's equity market status following his return to Korea, the government was expected to come up with a specific plan to lift the ban on the investment method, which entails betting on stock price falls.

The FSC chairman, however, noted that the government has to take into account the effect of the short-selling ban and market conditions, although he acknowledged the necessity of the complete resumption of short-selling for Korea's equity market to be among the MSCI's "developed" markets.

"The government will review how and when the short-selling should be resumed completely," he said.

In response to a request from the Citibank Korea union to revise the Banking Act to prevent licensed financial firms from shutting down without permission from the government, Koh said that the FSC has studied various cases in other countries and listened to legal experts.

"We will continue to review the effectiveness of reforming the regulations," he said.

The regulator also warned financial holding companies and banks against paying a huge amount of dividends to their shareholders, despite the lifting of the 20 percent dividend cap in June.

"We believe that banks will respond to internal and external economic situations, in terms of maintaining their financial soundness and capital adequacy," he said.

Regarding strengthened policies to curb household debt, he basically maintained his hawkish stance, although he indicated that "flexible" methods can be used next year for borrowers in desperate need of loans.

"Since the outbreak of the COVID-19 pandemic, the amount of household debt has soared, leading the household debt-to-GDP ratio to surpass 100 percent and the financial imbalance to worsen," Koh said. "We aim to normalize the pace of household debt growth and bring it back to pre-COVID-19 levels."


Park Jae-hyuk pjh@koreatimes.co.kr


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