GL Entech (5)
Chairman Jo Gyeonghwi said calmly.
"More than that, what do you mean you won't use retail investors' shares for short selling?"
In truth, that was the real issue—not the computerization.
Computerization would take at least several months anyway, so whether retail shares could be used for short selling was the only thing that could have an immediate impact.
When we'd been doing it quietly all along, it wasn't a big deal. But once short selling is computerized, it'll be known anyway, won't it? That's why we announced it in advance. What's wrong with that?
The short-selling computerization issue won't be decided right away, so please discuss it and get back to us. I'll be waiting for your answer.
"Ah, no..."
So why are they bringing it up now?
From retail investors' point of view, of course they wouldn't like their shares being used for short selling.
When every securities firm was doing it together, people could complain all they wanted, but there was nothing they could do about it. But once a few firms publicly declared they wouldn't, the ones that kept doing it would be the ones taking the heat.
No—if all they got was abuse, they'd be lucky.
The real problem was...
"Wait, hold on."
Before he could say anything else, the call had already ended.
At that moment, Division Head Park Hyeondong rushed in with a panicked report.
"We're in big trouble. Customers are flooding us with complaints, asking why we're using their shares for short selling without permission! They say if we don't stop immediately, they'll move their accounts to another securities firm!"
"...What?"
Other stocks didn't matter. Those could be replaced easily enough.
But GL Entech shares were different.
Once they'd already been lent out for short selling, there was no way I could let those shares move elsewhere.
And yet...
If you told them, "We're using your shares for short selling, so don't transfer them," would retail investors really understand?
As GL Entech's stock started falling, the short-sellers finally breathed easier. But then, right in the middle of it, Yuseong Securities, Hwaan Securities, and DA Securities announced that they were moving to computerized short selling, and the whole situation flipped on its head.
Retail investors who read the article were stunned by two facts: first, that shares sitting in retail accounts could be used for short selling, and second, that short selling still hadn't been computerized.
[Retail investors move their accounts!]
[Retail-investor café urges people to transfer their accounts to Yuseong Securities, Hwaan Securities, and DA Securities, which have declared a ban on short-selling lending!]
[Retail Investors Association: Securities firms must apologize for short-selling lending!]
As retail investors' complaints boiled over, Financial Services Commission chairman Im Gwangsu even stepped in to put out the fire.
"Because the messages exchanged during the short-selling process are left on record, naked short selling can never happen. I ask that you not be swayed by malicious rumors from certain groups."
But that only made retail investors even angrier.
Because retail investors were moving their accounts, the securities firms ended up holding fewer shares than they had lent out.
The firms that had effectively helped support naked short selling were thrown into confusion.
KD Securities was seeing its GL Entech shares shrink fast as well.
Again, the securities firms had enough stock on hand. It was just locked up for another eleven months.
But if you told investors who wanted to sell or transfer their shares to just wait eleven months on faith, who in the world would sit around and do it?
If they slipped up and couldn't return the shares, they'd be staring down a class-action lawsuit.
The securities firms, now desperate, started buying shares back.
Chairman Jo Gyeonghwi felt like he might cry.
We have to buy at this price?
Given GL Entech's fundamentals, the current price was ridiculous. I knew very well it would crash before long.
But right now, I had no choice but to buy with a knife at my throat.
GL Entech's stock climbed nearly 20 percent to 500,000 won.
Its market cap soared to 400 trillion won, and its weight in the KOSPI rose to 16 percent.
In the stock market, it's not unusual for a single issue to hit the upper limit or even rise tenfold.
But if that issue happens to be the second-largest company by market cap in the entire KOSPI, that's a different story.
GL Entech's rise pushed the KOSPI itself higher, and the KOSPI 200 index followed along as well.
It was a warped situation in which both the cash market and the futures market were being dragged around by one stock.
Right after the close, an emergency economic strategy meeting was held at the Government Seoul Complex under the president's chairmanship.
Ministers from across the government, along with the heads of the Financial Supervisory Service, the Financial Services Commission, and the exchange, gathered for a closed-door meeting.
The agenda, of course, was GL Entech's explosive stock price.
Financial Services Commission chairman Im Gwangsu said, "We've already contacted Morgan Stanley and asked them to cancel the MSCI inclusion. We've also reached out to the other financial firms and explained the price anomaly, asking them to delay inclusion in various indices and ETFs."
But that was only a stopgap measure.
President Oh Younghwan asked, "What about excluding it from the KOSPI 200?"
The KOSPI 200 constituents weren't fixed; they were changed as needed. If a stock was suspended, delisted, or merged away, a reserve name was ready to take its place at any time.
FSS chairman Jang Jinhaeng said, "In principle, that can only be done after options expiration. If we swap out a stock without a compelling reason, we risk international lawsuits from investors."
If the stock had been suspended or delisted, that would be one thing. But if they pulled a perfectly healthy, actively traded name and inserted another one in its place, would the investors who lost money because of it just sit still?
What's more, if the government freely shuffled constituents around and turned losses into gains and gains into losses, market confidence would collapse to the floor.
"Then why not lift the lock-up?"
The root of the problem was that supply and demand had become tangled.
The simplest way to unwind that was to lift the lock-up. If they did, 90.4 percent of the shares would flood the market, and the price would naturally return to normal.
"That could also lead to lawsuits from investors."
The lock-up was a rule set by law.
To make sure it couldn't be violated in the first place, the shares were held by the Korea Securities Depository. If they simply lifted it whenever the situation suited them, who would trust the Korean stock market enough to invest in it?
That was why they hadn't been able to lift the lock-up during the Kodiaclose incident either.
"What about short-selling computerization? The market is already nervous, so why would you suddenly announce something like that?"
Lee Deoksu, the head of the exchange, answered with a grim expression.
"I asked the securities firms in question, and they're not saying they'll do it immediately. They say they'll work with related institutions to proceed in a way that won't shock the market."
"Then why announce it now?"
Obviously, because they had teamed up with Continue Capital.
As much as he wanted to order them to stop immediately, there was no point now that the announcement had already gone out. If anything, once it became known that pressure had been applied to cancel the short-selling computerization plan, the criticism would only get worse.
More than two hours had passed since the meeting began, and yet nothing resembling a real countermeasure had emerged.
President Oh Younghwan felt as if he might explode from frustration.
Strictly speaking, this had nothing to do with him, and it wasn't even his responsibility.
And yet...
Because some tabloid-scum bastard had written a bizarre article, people had come to believe the president took bribes from the GL Group and supported the physical split-off.
He had explained himself several times, but nobody believed him.
On top of that, Credit One Korea, where his niece's husband Choi Sideok worked, had participated in the GL Entech offering and been allocated about 20 billion won worth of shares.
Those shares had nearly quadrupled thanks to the price explosion.
It wasn't as if they could be sold right now because of the lock-up, so there was no actual profit yet—but the public wouldn't see it that way.
If GL Entech kept surging like this without any action from him, people would accuse him of trying to cash in on stock manipulation.
But if he did take action, they'd say, No, he'd taken a bribe from GL Entech after all, and was moving to clean up the mess.
In other words, no matter what he did, he was going to get blamed.
President Oh Younghwan snapped, "So this won't work, that won't work. All you ever say is it can't be done, it can't be done. What are we supposed to do, then? We need a countermeasure. A countermeasure! Say something, anything, that can actually be used as a countermeasure!"
...
...
But no one opened their mouth.
Because there was no countermeasure.