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FSC to overhaul rules on short-selling

Seoul’s top financial regulator said Thursday it would overhaul rules on short-selling and market disclosure in the aftermath of the latest Hanmi Pharmaceutical scandal.

In response to questions by lawmakers during a parliamentary audit on the Financial Services Commission, its Chairman Yim Jong-yong pledged to prepare measures to prevent losses from retail investors due to delayed disclosures in deals.

Chae Yi-bae of opposition People's Party speaks up about sell-stock-off during a parliamentary audit. (Yonahp)
Chae Yi-bae of opposition People's Party speaks up about sell-stock-off during a parliamentary audit. (Yonahp)

“I agree on that there are problems to the current short-selling and market disclosure system,” Yim said. “The FSC will come up with measures as soon as possible.”

A belated announcement on Sept. 30 about termination of a partnership between Hanmi and Germany’s Boehringer Ingelheim on sharing a license to manufacture a cancer-fighting drug left retail investors out of the loop for the first 30 minutes after the market opened. There were, on the contrary, expectations of the shares rising further on the company’s new deal with Genetech, which was announced the day prior.

The unfavorable news came about 29 minutes after the market opened, and 14 hours after the firm was notified of the termination by the German partner.

Institutional investors, in the meantime, reaped profits from short-selling stocks of the No. 1 Korean pharmaceuticals firm.

The current system is designed to disclose short-selling trades three days after the transactions are made.

“Since most of the short-sellers were foreign institutional investors, belated disclosures were unavoidable due to the time gap,” Yim said.

The FSC has teamed up with the Korea Exchange and Financial Supervisory Service to investigate possible leaks of information on the Hanmi-Boehringer deal and suspicions of insider trading.

Rep. Park Yong-jin of the main opposition The Minjoo Party of Korea urged the FSC chairman to require listed firms to make announcements about any change in technology or license-related contracts immediately. Currently, firms are given autonomy to decide on their own whether to announce such information or not.

Park also made a point that investors should be required to unveil volumes for short-selling.

But Yim remained cautious of such a change, saying, “Such a requirement can be read as a ban on short-selling to investors, which will make them feel too burdened.”

Meanwhile, during the audit, the FSC chairman also acknowledged the problems of the rising household debt, pledging to curb the growth in lending by nonbanking institutions such as credit companies.

Loans by nonbanking institutions surged 24.4 trillion won ($21.9 billion) for the first six months of the year, according to the FSC data, a stark increase from 8.6 trillion won increase compared to the same period last year.

“The household debt issue is considered a significant risk factor threatening our economy,” Yim said. “Thorough measures are needed to prevent the problem from being a systemic risk.”

By Song Su-hyun  (song@heraldcorp.com)
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