Korea REITs Association submitted a proposal to the Financial Services Commission and Korea Exchange requesting that listed REITs be excluded from short-selling eligible stocks or at minimum receive differentiated treatment. The association cited excessive short selling concentration in the small-scale REIT market as distorting price formation for dividend-focused assets. Listed REITs in Korea comprise 23 stocks with approximately 8.3 trillion won in market capitalization, structured to distribute over 90% of distributable profits as mandatory dividends based on rental income, attracting individual investors and pension funds seeking stable dividend returns rather than growth.
Korea REITs Association Submits Proposal to Financial Authorities
Korea REITs Association submitted a proposal to the Financial Services Commission and Korea Exchange requesting review of excluding listed REITs from short-selling eligible stocks or applying differentiated treatment. The association stated that excessive short selling concentration in the small-scale market distorts price formation for dividend-focused assets.
The association noted that under the Capital Markets Act and Securities Market Business Regulations, the Financial Services Commission can adjust the scope of securities eligible for short selling upon request from the exchange, making institutional improvements possible without separate legal amendments.
REIT Market Shows Disproportionate Short Selling Concentration
Domestic listed REITs show average daily trading volume of approximately 159,000 shares per stock, one-tenth of the KOSPI average. However, 9 out of the top 50 short-selling stocks in May were REITs, and 7 out of 14 overheated short-selling stocks in April were REITs.
Specific cases showed short selling ratios exceeding 50% on certain trading days, and one case in June recorded a 24.5% short selling ratio relative to monthly average trading volume. The association argued that concentrated short selling in markets with limited liquidity creates high risk of distorting REIT prices that should be formed based on net asset value (NAV) and dividend yields.
Association Proposes Regulatory Framework Adjustments
The association proposed that if full exclusion proves difficult, differentiated short selling restrictions should be applied starting with REITs below certain thresholds for market capitalization or free float ratio. Suggested approaches include strengthening criteria for designating overheated short-selling stocks or setting upper limits on short selling ratios, with phased expansion based on market conditions.
The association emphasized that applying the same standards as general stocks is difficult given the high proportion of retirement pension and retiree funds in REIT investments.
Industry Voices Call for Market-Specific Approach
One real estate IB industry source stated that REITs are products where dividends and asset value are core rather than corporate performance, requiring reconsideration of whether applying the same short selling system as general stocks is appropriate. The source noted significant criticism that applying the same standards as large overseas REIT markets is unreasonable given the still-small market size.
Another industry source noted that short selling also serves price discovery functions, making differentiated regulation centered on low-liquidity stocks a more realistic alternative than full exclusion. The source added that some market participants worry that excluding short selling could further constrain liquidity.
Overseas REIT markets including the United States (approximately 2,064 trillion won), Japan (approximately 140 trillion won), and Singapore (approximately 116 trillion won) conduct short selling based on sufficient trading volume and securities lending infrastructure. The association argued that Korea's REIT market requires a separate approach reflecting market maturity rather than applying the same system, given its relatively limited scale and liquidity.
FAQ
What did Korea REITs Association request from financial authorities?
Korea REITs Association submitted a proposal to the Financial Services Commission and Korea Exchange requesting that listed REITs be excluded from short-selling eligible stocks or receive differentiated treatment, citing excessive short selling concentration in the small-scale REIT market.
How does short selling concentration in Korean REITs compare to overall market levels?
Korean listed REITs show average daily trading volume of approximately 159,000 shares per stock (one-tenth of KOSPI average), yet 9 out of top 50 short-selling stocks in May were REITs, and 7 out of 14 overheated short-selling stocks in April were REITs, with some cases showing short selling ratios exceeding 50% on specific trading days.
What alternative approaches did the association propose?
The association proposed that if full exclusion proves difficult, differentiated short selling restrictions should be applied starting with REITs below certain market capitalization or free float ratio thresholds, including strengthening overheated stock designation criteria or setting short selling ratio upper limits with phased expansion.
