To Combat Volatility on Stock Market
South Korea’s financial regulator has vowed to intervene in the stock market if volatility continues to increase.
During a meeting with investment banking industry insiders at the government complex in Seoul on Aug. 5, Financial Services Commission Vice Chairman Sohn Byung-doo said, “We will act swiftly and boldly. We will choose the most suitable policy depending on market conditions. Our policy options include easing regulations on the purchase of treasury stocks, stronger regulations on short selling and reduction of the daily price limits.”
Strengthening regulations on short selling attracted the most attention among the measures that Sohn mentioned. Short sellers intentionally spread malicious rumors to drag down share prices as they have different interests from small investors. Many stock investors have continuously pointed out that short sellers contributed significantly to the recent stock market crash.
In fact, the balance of securities lending between Aug. 1 and 6 this year stood at 57.43 trillion won (US$47.23 billion), according to recent data from Securities Information Portal (SEIBro) under the Korea Securities Depository (KSD). The figure is slightly lower than the previous record high of 57.55 trillion won (US$47.32 billion) at the end of last month but it still remains at a high level. The balance of securities lending is the amount of securities that investors borrowed but have not paid back yet. It is usually used in short selling.
Under the circumstances, retail investors headed to People's Petition Board of Cheong WaDae. The number of people supporting the petition to "Temporary Ban on Short Selling,” which was submitted on Aug. 2, reached 18,000 as of 3 p.m. on Aug. 6, according to the Cheong Wa Dae petition website.
However, the government is grappling with the ban of short selling considering the fact that short selling also plays a positive role in relieving the market variability and shocks.