Small Investors Call for Abolition of Short Selling
The total amount of short stock sales in the South Korean stock market exceeded 120 trillion won (US$106.38 billion) this year, hitting a record high.
According to Korea Exchange (KRX), the cumulative amount of short selling in the benchmark KOSPI and secondary KOSDAQ markets from Jan. 1 to Dec. 7 reached a record high at 121.71 trillion won (US$107.9 billion). The figure included 91.64 trillion won (US$81.24 billion) in the KOSPI market and 30.07 trillion won (US$26.66 billion) in the KOSDAQ market.
The amount of short selling for a month during “Black October” when the domestic stock market continued to plunge came to 13.31 trillion won (US$11.8 billion), including 10.47 trillion won (US$9.28 billion) in the KOSPI and 2.84 trillion won (US$2.51 billion) in the KOSDAQ. It was the highest monthly figure ever after the statistics started being collected in June 2008.
The KOSPI and KOSDAQ indexes plunged by 13.37 percent and 21.11 percent, respectively, during October due to a series of unfavorable factors at home and abroad and short selling.
The South Korean stock market has continued to stay in a box pattern after taking a nosedive in October but the short selling transactions don’t show signs of a downward trend. The combined amount of short stock sales stood at 10.22 trillion won (US$9.06 billion) last month, including 7.93 trillion won (US$7.03 billion) in the KOSPI and 2.29 trillion won (US$2.03 billion) in the KOSDAQ. The figure went down by 23.2 percent from the previous month but still remained high compared to 8.38 trillion won (US$7.43 billion) in September before “Black October.” It shows that there are still a lot of forces which bet on an additional drop now even when the stock market has gotten into the box pattern after the shakeout.
Eight out of 10 shares which rank in top 10 in terms of short selling transactions saw their prices continue to fall until now after October. The average rate of decrease in their share prices recorded at 12.2 percent. The short selling force targeted mainly Samsung Heavy Industries Co., Samsung Electronics Co. and SK Securities Co. during the period.
The rage of small investors, who suffered a huge loss owing to the triple distress such as volatile market, short selling and securities transaction tax, ran to an extreme. Individual investors were completely excluded from short selling so the domestic stock market has been labeled as “tilted playfield” and “playground for foreigners” throughout this year. In fact, individuals accounted for only 1.1 percent of the total short selling transactions as of the 7th. On the other hand, foreigners and institutions took up 68.5 percent and 30.6 percent, respectively.
The rage of small investors headed to People's Petition Board of Cheong Wa Dae. Thousands of petitions had been filed, demanding that the short selling system be abolished. As there is growing criticism over short selling, the National Assembly also made a movement. Cho Kyoung-tae of the main opposition Liberty Korea Party proposed a bill prohibiting all types of short selling, including covered short selling, saying, “When institutions and foreigners which have an advantage in capital and information short sell with the purpose of speculative market price control, it can cause a serious damage to individual investors.”
However, there is a prevalent view in the market that it is impossible to abolish short selling in reality. This is because it is inappropriate to restrict all types of short selling which is generally permitted in financially advanced countries. Most of advanced countries, such as the United States and the European Union, are currently introducing short selling.
Experts point out that the government should greatly strengthen subsequent measures on naked short selling and widen the opportunity for individuals to participate in short selling in order to make the short selling function work properly.