[Interview file] The cause of the'stock price collapse' Short selling that Joo-rin does not know'misunderstanding and truth' ②

● There is no'repayment maturity' in Korea?...

“Half Right, Half Wrong”

Abolition of Short Selling Public opinion is not sinking easily because individual investors have a lot of distrust in the'short selling system'.

In particular, concerns seem to be the biggest concern that short selling forces are playing around with our stock market, which has no'repayment maturity'.

Unlike the United States, in Korea, there is no fixed period for repaying borrowed stocks, so it is argued that it is possible for the short-selling force to'hold up'.

Of course, some are correct, but others are wrong.

First of all, even in other countries, the'repayment period' is not nailed.

Since the act of borrowing and lending stock is done off-the-shelf, a contract is concluded by agreement between the two.

According to the Financial Services Commission, there is no regulation on the'repayment period' in the overseas lending market.

The same can be found in the Standard Terms and Conditions for International Loan Transactions (GMSLA).

Even so, since the'repayment period' can be extended at any time, the question may remain that in fact'unlimited extension' is not possible.

This is theoretically possible, but it is not easy.

That's because there can be a conflict of interest between the lender and the lender.

Basically, if the lender of the stock asks for prepayment, the lender must repay the stock.

Let's take as an example the recent process of the'Game Stop Buying Movement' in the United States.

After the hedge fund A began selling short, the stock price of Company B surged amid backlash from individual investors.

From the standpoint of institution B, which lent stock to hedge fund A, it is wise to get the stock back and sell it at a high price to seek a market margin.

In the end, when stock prices surge, it is difficult for the short-selling forces to hold up until they fall again.

Then, on the contrary, let's look at a case where the stock price is falling.

First of all, there is no reason to pressure the institution that lent the stock to "return the stock quickly."

However, the hedge funds that borrowed stocks will repay the borrowed stocks through'short covering', which buys stocks at low prices according to the original strategy.

Since we have set a profit-taking period before going short, it seems unlikely that we will choose a strategy that simply waits for the stock to fall further.

Of course, some of the arguments that there is no fixed'repayment period' may be correct in the literal sense.

However, when the Korea Securities Depository looked at the'repayment period' for all short sale transactions made last year, it was found that about 60 days was an average.

Looking at some media reports, it's noticeable that institutions don't need a margin to borrow stock.

<Securities Market Business Regulations> Article 87 also stipulates that "the collection rate of consignment margin and the method of collection is determined by the member", which may cause misunderstanding that "collateral is not required to borrow stocks."

However, this is not true.

As a result of checking with all institutions involved in stock trading, such as the Financial Services Commission, the Korea Exchange, and the Korea Securities Depository, no institution or brokerage company can borrow stocks for free.

It was investigated that in order to borrow stocks worth 1 million won, it is necessary to provide stocks equivalent to 1.35 million won as collateral.

Compared to overseas markets, the margin or collateral ratio may be low, but it is not possible to borrow stocks for free.

Even for domestic individual investors, short sale transactions (credit loan transactions) are possible if they have cash or securities corresponding to the margin rate determined by the securities company.

'T+2-day payment method' means that it takes two days for a sold stock to be converted into cash.

According to the Korea Exchange, most countries with open capital markets, such as the United States, Japan, Germany and Hong Kong, use the T+2 day payment method.

This is to support the smooth settlement of foreign investors in different time zones.

Therefore, it is not true that only Korea can make'no borrowing short selling' using the T+2-day payment system.

However, as'reasonable suspicion' has been raised that institutions and foreigners have abused the T+2-day payment system to sell stocks that they do not have, and that they have made an illegal short sale in the form of buying immediately, the Korea Exchange has developed a new technique. It is scheduled to begin maintenance from January.

On May 3rd, with some resumption of short selling, individual investors remain uneasy.

According to Real Meter, a specialized public opinion poll, 24.0% agree to resume short selling and 60.4% disagree.

Individual investors' distrust and concerns about short selling appear to have been reflected.

Financial institutions are in the position that they will take all measures ahead of the resumption of short selling.

However, while the market participation rate of individual investors has exploded, it seems inevitable that criticism is inevitable that'there wasn't financial institutions just behind the scenes?'

▶ [Report File] The cause of the'stock price plunge'?

Short selling that Joo-rin does not know is'misunderstanding and truth' ①