S.Korea inspecting stock short-selling, starting with Morgan Stanley

A currency dealer works in front of an electronic board showing the Korea Composite Stock Price Index (KOSPI) at a dealing room of a bank in Seoul, South Korea. REUTERS/Kim Hong-Ji/File photo

SEOUL  – South Korea’s financial regulator has launched an inspection into short selling of shares by major brokerages and branches of foreign firms as part of efforts to tighten supervision on such trading.

The Financial Supervisory Service (FSS) had begun inspection of short-selling transactions by the Seoul branch of Morgan Stanley & Co International Plc and was expected to widen the probe into other outlets, an FSS official said on Tuesday.

The official said the inspection was not based on any specific suspicion or allegation of wrongdoing and was not targeting any specific company. But it was part of its efforts to strengthen monitoring of short selling, which is the sale of borrowed shares, benefiting the seller if prices fall.

“It’s not possible for us to look into all the companies, so the inspection will most likely be focused on big players,” the official said, adding that no time frame for the work had been set.

Morgan Stanley’s branch is one of several financial services firms most actively undertaking short selling of shares, which South Korea has recently allowed to resume after a suspension but under many restrictions, such as tradable stocks.

Data from Korea Exchange shows local branches of such foreign companies as Merrill Lynch, Credit Suisse, Goldman Sachs and UBS were also among the major players in terms of stock short-selling.

President Yoon Suk-yeol, who took office in early May, has ordered thorough supervision of stock short-selling, which many South Korean retail investors have complained has deepened the local stock market’s falls.