Ant short selling conditions become the same as for institutions… Resolving the tilted playing field

The government has decided to unify the short selling conditions for individual investors and institutions. The repayment period and collateral ratio of stocks borrowed by individual investors are adjusted to the institutional level. Due to the ’tilted playing field’ controversy raised by an individual, it was decided to adjust the conditions despite the different credit situations, but some are concerned about side effects.

At the ‘Open Discussion with Individual Investors’ held by the Financial Supervisory Service on the 25th, Korea Securities Finance announced that it would reduce the lender’s collateral ratio from 120% to 105%, the same as that of institutions. Lending is a credit transaction in which a securities company lends stocks to individuals for the purpose of selling. To short sell, you must first borrow money.

The current lender-to-collateralization ratio is more than 120% of the borrowed amount when cash or KOSPI 200 stocks are held as collateral. As the government pursues amendments to related laws, the collateral ratio for cash will be reduced to 105% or more. However, if KOSPI 200 stocks are collateral, the amount is 120%, the same as before.

For example, if an individual wanted to borrow 50 shares of A stock worth 20,000 won, 1.2 million won in cash was held as collateral in the past, but after the law is revised, only 1.05 million won, which is 150,000 won less than this, is needed.

The Korea Securities Depository also participated. The Korea Depository announced that it would apply the same 90 days to individuals and institutions as the repayment period for stock loan transactions for the purpose of borrowed sales. Currently, in the case of institutions, the borrower repays upon request without any period restrictions, but this will be changed to ’90 days + extension’ like for individuals.

In terms of repayment periods, an environment has been created where individual investors are more advantageous than institutions. Institutions have a ’90 days + extension’ structure and must repay immediately if the lender requests it, but individual investors have the same ’90 days + extension’ structure and the lender cannot request early repayment. Unlike institutions, individuals are guaranteed a 90-day repayment period. The revised repayment period and collateral ratio will be implemented after the relevant laws are revised.

The actions of Korea Securities Depository and the Korea Depository are in response to the Financial Services Commission’s announcement in November last year that it would completely ban short selling and resolve the tilted playing field between individuals and periods during this period. However, concerns are being raised in academia. This is because it is difficult for individual investors to make a profit through short selling, but the government opens this method, which can increase investment losses.

Cha Moon-hyeon, vice president of Timefolio Asset Management, said, “The commission required to borrow stocks for short selling varies depending on the stock, but in some cases, you have to pay up to 10%.” He continued, “(Short-selling investors) have limited profits when stock prices fall, but when stock prices rise, losses increase infinitely,” adding, “This can be dangerous for individuals.”

Lee Jun-seo, a professor at Dongguk University, said, “Even if you only think about bank loans, it is natural for individuals and institutions to have different interest rates due to their different credit ratings.” “There is,” he warned.