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THE INVESTOR
August 04, 2020
Big Reunion

Stocks & Bonds

Civic groups file suit against regulators for negligence in illegal short selling crackdown

  • PUBLISHED :February 14, 2019 - 16:54
  • UPDATED :February 14, 2019 - 16:54
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Korea’s civic groups on Feb. 14 filed a criminal suit against the top financial regulators, charging them with negligence in cracking down on illegal short selling in the local stock market.

Representatives of the Citizens’ Coalition for Economic Justice, along with over 17,000 individuals, have sued Financial Services Commission Chairman Choi Jong-ku, Vice Chairman Kim Yong-beom and Securities and Futures Commission’s standing Commissioner Kim Hak-soo. 

Members of Citizens' Coalition for Economic Justice stage a protest against the FSC at Seoul Central District Prosecutor's Office on Feb. 14
Yonhap

They argued the three top officials are to blame for retail investors’ losses from unfairness in the stock market here, adding they have fallen prey to short selling by foreign investors.

“Each year in the last decade, there were at least 10 naked short selling activities found on average, and this is just the tip of the iceberg,” Daniel Bae, a member of the civic group, told reporters at Seoul Central District Prosecutors’ Office. “(Financial authorities) were aware of the activities, and the system to better track such illegal practices was ready to be put in place, but they did not take any action.”

Stock investors in Korea are banned from naked shorting, or a short selling activity without borrowing securities. Covered short selling is allowed in Korea but is highly monitored, as the authorities track stock borrowings here. Short selling transactions account for less than 5 percent of the entire trading here.

Nearly seven out of 10 transactions on Korean markets KOSPI and KOSDAQ came from retail investors, according to the Korea Exchange.

By Son Ji-hyoung (consnow@heraldcorp.com)

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