It has been found that the 'short selling transaction interest rate' imposed by securities companies on short selling stocks does not accurately reflect market supply and demand conditions. Despite government efforts to activate the individual short selling market, there are still criticisms that there is a long way to go. The lack of available shares is also a factor that makes it challenging for individuals to enter short selling.
On the 14th, a check of the short selling transaction interest rates of major securities companies revealed that they apply a uniform interest rate to all short selling stocks. NH Investment & Securities and DAISHIN SECURITIES impose annual interest rates of 4.5% and 6%, respectively, while MERITZ Securities charges a uniform interest rate of 5.9% for lending periods within 7 days and 7.55% until the 15th.
The remaining securities companies have unified interest rates based on whether a stock is included in the KOSPI 200. Samsung Securities, Mirae Asset Securities, Shinhan Investment Corp., and Korea Investment & Securities apply an interest rate of 4.5% for KOSPI 200 stocks and 6% for other stocks. Kiwoom Securities and KB Securities also apply an interest rate of 2.5% for KOSPI 200 stocks and 4% for others.
A relationship in the financial investment industry noted, "Currently, the short selling transaction interest rates are unified and do not accurately reflect market supply and demand," and pointed out that "the price range should be more finely segmented to serve as an investment judgment indicator."
In simple terms, it means that the same short selling interest rate is applied to volatile stocks such as political theme stocks that could crash at any time and stable large-cap stocks. If the short selling interest rates were to be deregulated, for instance, in the case of soaring stocks, if the interest rate rises to 100%, stockholders would prioritize short selling interest income over stock trading profits. However, in our country, the short selling interest rates for individuals are unified, making such decisions impossible.
Foreign and institutional investors naturally determine interest rates based on short selling demand and available liquidity. Abroad, individual investors' interest rates are also determined according to market logic. In the United States, Japan, and Taiwan, the higher the short selling demand and the harder it is to borrow stocks, the higher the interest rates applied.
There are significant constraints on eligible short selling stocks and volumes. It is practically impossible for individual investors to borrow the desired amount of stocks they wish to short sell. To secure short selling volumes, investors must agree to allow securities companies to use their held stocks for short selling purposes, known as 'stock lending', but this process is not smooth due to negative perceptions of short selling.
Hwang Se-yoon, a senior member of the Capital Market Research Institute, said, "In Japan, volumes secured through loan transactions can also be used for short selling. Various routes must be established to include stock borrowing for securing short selling resources for the individual short selling market to be activated."
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) expected that by revising the stock repayment period and collateral ratios among short selling systems, the barriers for individuals to enter short selling would be lowered. They unified the collateral ratio that individuals and institutions must bear during short selling transactions at 105%, and also uniformly applied the short selling repayment period of 90 days (extendable) for both sides.
However, the scale of individual short selling remains minimal. According to the Korea Exchange, over the week after the resumption of short selling (March 31 to April 4), the proportion of transaction amounts occupied by individuals was 0.85% (54.3 billion won). The rest comprised 89% by foreigners and 9.8% by institutions. In the week just before the ban on short selling in 2023 (October 30 to November 3), the percentage held by individuals was 1.86% (71.4 billion won). After the resumption of short selling, the proportion of individual short selling actually decreased.