[THE INVESTOR] Small investors’ anger over the Sept. 30 share-dumping scandal involving Hanmi Pharmaceutical is showing no signs of abating.

A core allegation is that massive short sales were conducted simultaneously by a group of local and foreign brokerage firms on the day, which accessed the drugmaker’s internal information before it was publicized on the stock market.

Criminal investigators raided about 10 securities firms on Wednesday, following their earlier move to confiscate a variety of documents at the headquarters of Hanmi. While some critics say the prosecution’s raid is a belated action, others raise questions over the financial authority’s will to crack down on law-breakers.

Small investors mostly shared the view that the Financial Services Commission should have been speedy in its decision to ask the prosecution to raid suspected companies. They are pinning their hopes on the prosecutors’ action to punish those who might have exploited insider information.

Since the dumping incident, FSC Chairman Yim Jong-yong kept saying that the government has no intention to abolish the short-selling system despite the growing calls from individuals, demanding it be scrapped.

Asked about the necessity of issuing a full-fledged ban on the system by a lawmaker, Yim said it was not a “market-friendly” approach. The chief regulator claimed that short sales have both positive and negative functions, adding the FSC’s job is to take stern disciplinary measures against those who engaged in unfair trading.

Responding to lawmakers’ questions over the past weeks, Yim stressed the regulatory policies should not undermine the market. His stance is understandable given the government’s effort to attract more foreign investments.

However, to eventually resolve the backlash, the issue should be seen from the perspective that the local stock market should be fair to all investors, which includes individuals, local institutions and foreign institutions.

A market-oriented policy should have the concept of offering equal opportunity. But individuals are barred from conducting short-selling on the main Kospi and secondary Kosdaq markets.

Indexes of the two capital markets repeat ups and downs. Even under a continuously declining mode, both domestic and foreign institutions can take huge gains via short sales -- selling at higher prices and paying back at lower prices when the market is bearish. Small investors have no choice but to suffer losses whenever their stocks are hit by negative factors abruptly.

So it is hard to say that the two domestic capital markets provide investors with a level playing field. And the FSC deserves criticism that it is overlooking citizen’s losses.

Without correcting this biased situation, the financial supervisory authority will continue to lose credibility among the public, and the local market will remain an easy target for speculative investors.

The Hanmi scandal is an example in which speculative forces allegedly sought huge gains with a combination of insider information and short sales.

The FSC should actively cooperative with the prosecution in uncovering who engaged in insider trading.

Aside from the prosecution’s criminal measures like indictment, the FSC should hand down tough fines on the violators and suspend their licenses.

Equally important is to address problems inherent in the short sales system.

(theinvestor@heraldcorp.com)