Goldman Sachs Reignites Public Outcry for Abolition of Short Selling

A public outcry for the abolition of short selling has been rekindled by the failure of the Seoul branch of Goldman Sachs to settle short selling transactions.

Financial authorities seem embarrassed as they have been lukewarm about abolishing short selling. Officials have claimed that there has been no naked short selling.

"I have promised to tighten regulations on naked short selling. But a suspicious case took place," said Choi Jong-koo, chairman of the Financial Services Commission (FSC), in a meeting with reporters on June 5. He was referring to the non-settlement of a short selling transaction by Goldman Sachs. “We will look into the case more intensively.”

The FSC and the Financial Supervisory Service (FSS) recently announced a plan to improve the short selling system as individual investors called for the abolition of the system following Samsung Securities’s sloppy dividend payouts in April.

The regulators refused to abolish short selling, claiming that the system has positive aspects and that there has not been any naked short selling case.

The gist of the FSC plan was easing regulations on short selling for individual investors and introducing a real-time stock market surveillance system. However, in one week after the announcement of the plan, the Goldman Sachs case took place, prompting some experts to opine that it was necessary to limit short selling deals before introducing the surveillance system.

On the People's Petition Board of Cheong Wa Dae, 10 petitions have been filed, demanding that the the short selling system be abolished altogether. "One positive function of short selling is to eliminate bubbles of overly evaluated stocks. However, short selling has a seriously negative function. It creates an unlevel playing ground by allowing foreign investors and institutional investors to borrow shares unlimitedly for short selling, while mum-and-dad investors have very limited access to short selling,” one petitioner pointed out.

Some analysts insisted that short selling be banned until all brokerage firms’ systems are complemented for the verification of the quantity of borrowed stocks and short selling.