Short selling under threat in South Korea
08 March 2017 Seoul
Image: Shutterstock
Short selling is being used as a political football in Asia, with participants facing burdensome regulatory requirements across the region, particularly in South Korea, conference attendees heard in Seoul.
Panellists at the Pan Asian Securities Lending Association/Risk Management Association event in Seoul voiced concern that the recent hardening of short selling rules in South Korea would negatively affect their business.
It was also noted that the source of these amendments was actually South Korean lawmakers and not the regulator itself, which was only reacting to political forces outside of its mandate.
“If South Korea’s Financial Services Commission (FSC) isn’t the one making the decision on these rules then sometimes cooler heads might not prevail,” one panellist commented.
Among other changes, the Korean Exchange will be handed new powers to withdraw "overheated" stocks that receive “extraordinary increases in short selling and sharp falls in prices” during a single day for a 24-hour cooling-off period, as outlined in a statement by South Korea’s FSC in November 2016.
Panellists also highlighted newly implemented penalties for failing to comply with public disclosure and reporting requirements as further evidence of the political motives behind the rulemaking.
The political nature of the rule changes have caused industry participants to question the thought process behind some of the terms, such as a 60-day limit on term lending. The limit was handed down without explanation and has since been described as an arbitrary limit with no clarity on whether strategic lending and borrowing is allowed to work around it in order to maintain a short position.
"The short selling rules aren't a big problem but the concern is if this rule is just the start of a wider initiative," a South Korea-based panellist commented.
It was noted in a later panel discussion that South Korea has been a lucrative market for securities lending for the past two years, but these new requirements may dampen revenue in the future.
Short sellers are also under the spotlight elsewhere in Asia. In Hong Kong, the Securities and Futures Commission has instigated plans to bring in reporting requirements for short positions as of 15 March.
The Hong Kong Exchange also tightened its criteria for securities eligible for short selling in mid-2016 to bring them in line with the state’s equity market.
Taiwan’s stock exchange is now monitoring short selling volumes on its platform more closely for indicators of when securities become ‘attention stocks’, which are then liable for pricing limits, as of June 2016.
Panellists at the Pan Asian Securities Lending Association/Risk Management Association event in Seoul voiced concern that the recent hardening of short selling rules in South Korea would negatively affect their business.
It was also noted that the source of these amendments was actually South Korean lawmakers and not the regulator itself, which was only reacting to political forces outside of its mandate.
“If South Korea’s Financial Services Commission (FSC) isn’t the one making the decision on these rules then sometimes cooler heads might not prevail,” one panellist commented.
Among other changes, the Korean Exchange will be handed new powers to withdraw "overheated" stocks that receive “extraordinary increases in short selling and sharp falls in prices” during a single day for a 24-hour cooling-off period, as outlined in a statement by South Korea’s FSC in November 2016.
Panellists also highlighted newly implemented penalties for failing to comply with public disclosure and reporting requirements as further evidence of the political motives behind the rulemaking.
The political nature of the rule changes have caused industry participants to question the thought process behind some of the terms, such as a 60-day limit on term lending. The limit was handed down without explanation and has since been described as an arbitrary limit with no clarity on whether strategic lending and borrowing is allowed to work around it in order to maintain a short position.
"The short selling rules aren't a big problem but the concern is if this rule is just the start of a wider initiative," a South Korea-based panellist commented.
It was noted in a later panel discussion that South Korea has been a lucrative market for securities lending for the past two years, but these new requirements may dampen revenue in the future.
Short sellers are also under the spotlight elsewhere in Asia. In Hong Kong, the Securities and Futures Commission has instigated plans to bring in reporting requirements for short positions as of 15 March.
The Hong Kong Exchange also tightened its criteria for securities eligible for short selling in mid-2016 to bring them in line with the state’s equity market.
Taiwan’s stock exchange is now monitoring short selling volumes on its platform more closely for indicators of when securities become ‘attention stocks’, which are then liable for pricing limits, as of June 2016.
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