South Korea’s top financial regulator said Monday it is premature to discuss plans on opening individual investors‘ access to short-selling activities of Korean shares, stressing the danger of small investors taking potentially massive risks.

“Considering potential financial damage from short-selling, I personally hope ordinary retail investors don’t participate in it,” said the FSC Chairman Eun Sung-soo during a press conference held online due to the COVID-19 resurgence. 

“However, responding to mounting calls for a level playing field between institutional and individual investors in the short-selling market, the FSC will pre-emptively help professional retail investors join the short-selling under some conditions such as a certain amount of investment money as well as long experience in stock trading.” 

Short-selling is a strategy of borrowing, selling and repurchasing stocks to return them to the lender. The short sellers make profit by buying the stock back at a price lower than the price it sold it for. Due to a lack of policy framework that provides the average person with information and methods needed to profit from short-selling, individual investors have claimed that the financial authorities should come up with measures to address an uneven playing field between them and institutional and foreign investors.

To prevent naked short selling -- the illegal practice of selling short a stock or other tradeable security without first borrowing the security -- the FSC is planning to reinforce the current monitoring system at the Korea Exchange, while supervising related irregularities more frequently. 

Meanwhile, in a step to bring stability to the market hit hard by the pandemic, the FSC earlier extended its temporary six-month ban on short-selling activities of all listed shares to March 2021. 

As for the ongoing resurgence of COVID-19, the FSC will come up with additional measures to support the virus-battered economy, including an extension of loan repayment. At the same time the authorities will be alert over a rise in household and corporate debts, Eun added. 

By Choi Jae-hee (cjh@heraldcorp.com)