Thursday, December 20, 2018
Short Sale Volume Increases 26 Times after Dividend Chaos at Samsung Securities
Insatiable Avarice
Short Sale Volume Increases 26 Times after Dividend Chaos at Samsung Securities
  • By Yoon Yung Sil
  • April 12, 2018, 00:15
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The volume of short sale, which stood at 13,377 shares the day before “fat-finger” trading scandal at Samsung Securities, reached a record high at 588,713 on the day of the incident..
The volume of short sale, which stood at 13,377 shares the day before “fat-finger” trading scandal at Samsung Securities, reached a record high at 588,713 on the day of the incident..

 

Although the widening “fat-finger” trading scandal at Samsung Securities Co. is snowballing into a public movement to ban short selling on the South Korean market, institutional and foreign investors are increasing the volume of short selling for Samsung Securities. However, government officials, including Deputy Prime Minister and Finance Minister Kim Dong-yeon, are not calling for an outright prohibition on short-selling. Accordingly, there are growing concerns that individual investors will become more hysterical for short selling when the system is not revised.

The price of Samsung Securities shares closed at 35,450 won (US$33.15) on the Kospi market on April 11, down 0.28 percent, or 100 won (US$0.09), from the previous day. The company showed a decline for four trading days in a row after the unprecedented dividend chaos on April 6. Its stock prices increased to 36,400 won (US$34.03) in early trading on the 11th due to individual and foreign investors’ purchase in low prices, creating expectations that it would close higher for the first time after the incident. However, it turned downward after institutional investors went on a selling spree. Institutions sold 14.8 billion won (US$13.84 million) worth of more Samsung Securities shares on the same day and net sold a total of 154.5 billion won (US$144.46 million) since the 6th. Foreign investors’ buying spree for two consecutive days seems to buoy the investor sentiment but their net purchase is believed to be paying off the volume of short sale.

The price of Samsung Securities shares continues to take a dive due to not only the dividend fiasco but also the short selling. The volume of short sale, which stood at 13,377 shares the day before the incident, reached a record high at 588,713 on the day of the incident. However, the amount of Samsung Securities’ short sale shows no sign of decreasing since then. According to the Korea Exchange, the trading volume of Samsung Securities’ short sale recorded at 371,317 and 222,990 on the 9th and the 10th, respectively. The figures are closing to this year’s daily average of short sale of 380,000 shares until the 5th before the incident. In particular, the volume of short sale grew more than 26 times on the 9th, the next trading day after the incident. The percentage of short selling trading also dramatically increased. The daily average of short sale before the incident accounted for a mere 2.83 percent but its percentage rose to 6.9 percent and 6.6 percent on the 9th and the 10th, respectively. Samsung Securities’ employees consumed with greed dropped the stock prices with naked short-selling, making another greed reveal.

Individual investors, who cosigned to demand banning short selling at the Cheong Wa Dae web post, are concerned that the related policy can maintain. In fact, Choi Jong-ku, the chairman of the Financial Services Commission (FSC), said on the 10th, “Blaming short selling (for Samsung’s trading error) is not appropriate. Short selling has a positive side on its own, so the argument for the ban is not right.” In addition, Kim Ki-sik, the chairman of the Financial Supervisory Service (FSS), said, “The latest fiasco is a serious problem in that shares that don’t actually exist can be issued and traded. Raising an issue of short selling can obscure seriousness and true perspective.” The remarks show that they are staying in line with Finance Minister Kim, who said it is a hasty decision to ban short selling itself, and are heading in opposite directions with individual investors who demand banning short selling.