FSC to clarify short selling rules with international investors

The Financial Services Commission plans to engage foreign investors on new short-selling regulations ahead of the ban's end next March, aiming to clarify rules and enhance market conditions.

Financial Services Commission (FSC) Vice Chairman Kim So-young speaks during a press briefing on Monday in central Seoul. [FSC]

Ahead of the planned end to a short selling ban on March 31 next year, the country’s financial regulator will reach out to foreign investors to explain the details of related rules and regulations, said Financial Services Commission (FSC) Vice Chairman Kim So-young on Monday.

“We will try our best to constantly communicate with foreign investors in the follow-up procedure given that they requested clarification during the process of amending short selling-related regulations,” Kim said during a press conference for foreign and English-language media outlets.

One of the reforms include restricting the repayment period for institutional investors who borrow stocks to short.

It grants institutional stock borrowers a 90-day repayment period that can be extended up to a year, as opposed to the previous practice of an indefinite repayment period, which many criticized for creating an unfair market environment.

The suspension will also likely boost the probability of Korea's inclusion in the developed market index by Morgan Stanley Capital International (MSCI), Kim added, although the inclusion is not among the top policy priorities.

“Landing on the MSCI index itself is not our goal,” he said, “Rather, advancing the capital markets takes priority because it is a bit questionable whether the list is a genuinely objective developed market index.”

The financial authorities implemented a temporary ban on short selling last November after uncovering cases of naked short selling — selling shares without having borrowed them first — at global investment banks, a practice that is illegal in Korea. The ban, which was originally scheduled to last until last June, has been extended to March 2025.

As for the question about whether listed companies that join the FSC’s “value-up program” will be entitled to tax benefits, the vice chairman avoided a direct answer, but a vice finance minister said in a separate event that they are coming.

“The government will make efforts to pass a bill that will expand tax deductions rates for inheritance and corporate taxes for companies participating in the program,” said First Vice Minister Kim Beom-seok during a meeting with members of the Korea Listed Companies Association on Monday.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]