Korea Investment & Securities loses trust of retail investors

The Korea Times

The Korea Times

Finance

Sun, October 1, 2023 | 17:48

Companies

Korea Investment & Securities loses trust of retail investors

Posted : 2022-07-29 16:45

Updated : 2022-07-31 09:03

Korea Investment & Securities' headquarters on Yeouido, Seoul / Yonhap

By Lee Min-hyung

Kim Nam-goo, chairman of Korea Investment Holdings, the parent company of Korea Investment & Securities / Yonhap

Korea Investment & Securities is rapidly losing trust from the market amid mounting criticism from retail investors for its improper short-selling acts conducted for over three years ending in May 2020.

Early this year, the top-tier brokerage house by sales here was slapped with fines of 1 billion won ($769,000) for "mistakenly" shorting more than 140 million shares from 938 companies for three years and three months from February 2017. But the company did not notify the Korea Exchange of the fact that the transactions involved short-selling.

But retail investors' anger is reaching its peak after the company explained that this was simply a mistake made by its employee. They stepped up criticism of the company, saying that the authorities should strengthen punishment for what they call "unfair" trading acts by institutional investors.

"Major securities firms generate massive profits of more than 1 trillion won each year, but the fine of 1 billion won is too small even if authorities considered it a mistake by the company," a retail investor here said.

Retail investors have for years called for the need to level the playing field in the local securities market by revising the rules on the short-selling of shares, as institutional and foreign investors can only benefit from it due to their dominant market influence.

But as shorting is accepted in some form in the stock markets of many developed countries, the government did not accept the request from retail investors.

After Korea Investment & Securities came under fire amid this latest dispute, the financial authorities and the Korea Exchange held a meeting to improve policies, so as to put an end to any illegal trading acts surrounding short-selling.

"The pledge should turn into reality by slapping heavier sanctions on any financial institutions violating rules on short-selling," another retail investor said.

Data from Rep. Yoon Chang-hyun of the ruling People Power Party further tainted the image of the securities firm.

A total of 98 cases have been reported on the violation of internal principles of ethics from Korea's nine major securities firms between 2016 and the first quarter of 2022. Korea Investment & Securities accounted for almost one third of the cases ― the largest share of them ― according to data from the lawmaker's office.

But the government will not be able to make any drastic changes in existing policies on short-selling amid fears of a possible foreign capital outflow.

"Even if some minor changes can be made in a way to protect investors against any illegal shorting, the government is unlikely to take any strong steps against shorting at this time when the stock market remains in the doldrums and fears of a foreign capital outflow grow," an industry source said.

mhlee@koreatimes.co.kr