Eobok Hyeon, governor of the Financial Supervisory Service, embarked on an overseas trip to encourage participation in the construction of a short-selling regulation system for global investment banks. It appears to express a commitment to resolve illegal short-selling two months ahead of the expiration of his term.
According to the FSS on the 14th, Governor Eobok began meetings with local financial authorities and global investment bank representatives in Hong Kong and Beijing starting from the 13th. An FSS official noted, "The purpose of this trip is to discuss the introduction of a system to regulate illegal short-selling with global investment banks."
Since the resumption of short-selling in the domestic stock market on March 31, the FSS has established a 'Central Block System for Illegal Short-Selling (NSDS)' linked to internal balance management systems at domestic and foreign investment institutions to block illegal naked short-selling. The cooperation of global investment banks is essential for this system to take root.
Governor Eobok plans to meet with global investment bank representatives in Hong Kong and Beijing to explain the government’s measures against illegal short-selling and encourage their participation.
While preparing for the implementation of the NSDS, the FSS has continued discussions with global investment banks. This trip by Governor Eobok is an extension of such efforts. Global investment banks have shown discomfort with the introduction of a monitoring system for naked short-selling in the country, but consensus on the introduction of their own monitoring system has been established through several trips. According to the FSS, global investment banks have also agreed to consider linking their internal balance management systems with the NSDS.
An FSS official stated, "Cooperation with global investment banks is necessary for the system designed to block illegal short-selling to function effectively," and added that "global investment banks are showing a willingness to participate in the domestic market by establishing their own systems."
Short-selling is a necessary system for stabilizing the stock market and expanding market liquidity, but there have been many criticisms that 'naked short-selling,' where orders are placed without borrowing stocks, has frequently been detected and is a hotbed of illegality. Although naked short-selling is prohibited in South Korea, detection of naked short-selling by global investment banks, which are not covered by domestic monitoring, has continued.
In particular, Hong Kong is a region where several global investment banks have been detected for naked short-selling. In 2023, the FSS detected naked short-selling at BNP Paribas's Hong Kong branch and HSBC in Hong Kong, and also conducted a comprehensive investigation into over 10 global investment banks.
Meanwhile, Governor Eobok is approaching the end of his term in early June. This overseas trip, aimed at blocking illegal short-selling, is interpreted as an expression of his commitment to push through the policy until the end.
However, unlike previous governors of the FSS, criticisms have emerged regarding Governor Eobok's decision to travel overseas again during a tumultuous time for the stock market due to the tariff war originating from the United States. The governor has notably traveled overseas frequently, a rarity for an FSS head, pushing investment presentations (IR) alongside the CEOs of financial holding companies.