Brokerages to increase stock lending for short sellers

The amount of stocks that individual short sellers are able to borrow is set to be expanded as part of a government measure to back retail investors, as the resumption of short-selling draws near.

Short-selling is the practice of selling borrowed stocks and buying back the stocks at a later point, betting on being able to make a profit by purchasing the share at a lower price. The Financial Services Commission (FSC) banned the practice in March last year, in a bid to stabilize the market as the main KOSPI and tech-heavy KOSDAQ markets plummeted due to the COVID-19 pandemic.

Retail investors have opposed the resumption of short-selling, slated for May 3, claiming this puts them on an uneven playing field with institutional investors which have greater access to capital and information enabling them to reap larger profits.

“Retail investors will be able to borrow stocks from 11 new brokerages starting May 3. ”

The latest measure by the FSC will enable retail investors to borrow 2.4 trillion won in stocks from 28 brokerages. This is up from 20.5 billion won in stocks that could be borrowed from six securities firms. The six brokerages that have offered stock lending for retail investors are NH Investment & Securities, Kiwoom Securities, Shinhan Investment Corporation, Daishin Securities, SK Securities and Yuanta Securities.

Retail investors will be able to borrow stocks from 11 new brokerages starting May 3. They include Korea Investment & Securities, Hana Financial Investment, KB Securities, Samsung Securities, Mirae Asset Daewoo and Kyobo Securities. The rest of the securities firms will offer stock lending services for retail investors by the end of the year.

Retail investors will be able to hold borrowed stocks for up to 60 days. At the same time, the government has required inexperienced investors to take a session offered by the Korea Financial Investment Association educating the risks of short-selling. Retail investors can engage in short-selling only after taking part in mock trials with the Korea Exchange.

Investors first attempting short-selling will face a 30 million won limit in short sales, which will be lifted as they accumulate experience.