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Financial authorities prioritize creating favorable environment for foreign investors, still hesitant to fully allow short sellingBy Song Seung-hyun
Published : June 5, 2023 - 15:33
After more than 30 years, the requirement for foreigners to register in advance with the Financial Services Commission before investing in listed stocks and bonds in Korea has been abolished.
The Financial Services Commission made the announcement Monday, revealing that it has successfully made changes to the Capital Market Act, with the amendment officially approved during a Cabinet meeting.
After a proclamation on June 13, the new law will come into effect from Dec. 14.
The revision is part of the financial authority’s broader plan to create a favorable environment for foreign investors. Other high priority tasks that the FSC is working on include extending the operating hours of the foreign exchange market and mandating English disclosure for foreign investors.
The government’s plan also aligns with the country's endeavors to elevate its stock market to the highest tier of global market indices.
The South Korean government has been actively pursuing an upgrade of the Korean equity market from its current "emerging" status to "developed" status, as classified by Morgan Stanley Capital International, a leading index provider based in New York.
The implementation of these new rules is seen as a step towards achieving that goal, as it demonstrates the country's commitment to meeting the criteria required for such an upgrade.
If realized, the local stock market is expected to attract some $55 billion worth of net foreign capital inflow, according to Goldman Sachs.
As of the end of June 2022, foreign investors held approximately 30.7 percent of the local stock market.
With the recent revision on foreign investor registration, it is anticipated that a corresponding system will be created before December.
The new system will allow foreign investors to undergo a streamlined verification process using their passport number or legal entity identifier (provided to corporations) when opening accounts at securities firms in Korea.
Those who have already registered with the FSC under the previous law can continue using their registered numbers.
The initial purpose behind implementing the now-abolished foreigner registration regulation system in 1992 was to enhance the monitoring of foreign investments. Through registration, foreigners' trading records could be tracked using a foreign investment management system.
The requirement had been facing criticism from many foreign investors because it was perceived as excessive. This criticism also stems from the fact that such a registration process is not present in other developed countries like the US, Japan, and Germany.
The FSC further emphasized that despite the removal of the foreign investor registration system, the existing level of monitoring can still be maintained. This is achievable by leveraging the transaction records provided by the Korea Exchange, enabling real-time monitoring of essential statistics such as stock-specific, nationality-specific, and institutional-type-specific data, similar to the current practice.
Meanwhile, the government is still hesitant over the full allowance of short selling in Korea.
This short selling restriction has been considered as the final obstacle that makes the Korean market less appealing to foreign investors.
“We can only review (fully allowing short selling), when the market becomes more stable ... and concerns over short selling no longer exist,” Lee Bok-hyun, chief of the Financial Supervisory Service said during a press conference held on Thursday.
This statement is also similar to the one made by FSC Vice Chairman Kim So-young during a press conference with foreign media outlets held at the Korea Press Center in central Seoul in February.
The government temporarily banned short selling to defend the stock market from falling at the start of the COVID-19 pandemic. In May 2021, the government started allowing short selling of only Kospi 200 and Kosdaq 150 stocks.
Articles by Song Seung-hyun
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