Top regulator urges institutions to help soothe markets

(ATTN: UPDATES with FSC chief's remarks on short-selling ban in paras 9-12)
SEOUL, Aug. 9 (Yonhap) -- South Korea's top financial regulator called on heads of local securities firms and asset managers Tuesday to join the government's efforts to soothe markets, saying institutional investors' role is important.
The remarks by Kim Seok-dong, chairman of the Financial Services Commission (FSC), came as he held a meeting earlier in the day with eight chief executives from local brokerages and asset management firms in a bid to ease market turmoil sparked by last week's U.S. credit downgrade.
"Overall, the Korean economy remained sound given the country's foreign reserves, external debt structures and health of financial firms... Retail investors massively sold stocks on Monday. Short-term shocks were felt, but fundamentally, Korea's financial system is sound," Kim said.
The chairman requested that the CEOs make efforts to beef up the financial markets as institutional investors in the situation that the Korean financial markets are highly influenced by foreign capital movements.
"The financial watchdog plans to closely monitor foreign currency liquidity situations at local financial firms and take appropriate actions with proper timing," he added.
The meeting came as the Seoul financial markets were jolted by investors' panic selling by the credit rating downgrade for the world's largest economy by Standard & Poor's (S&P).
The benchmark Korea Composite Stock Price Index (KOSPI) has fallen more than 15 percent since Aug. 2, gripped by fears about a double-dip recession.
The KOSPI crashed as much as 9.88 percent on panic selling at one point in late morning trade although it recouped earlier heavy losses to close 3.64 percent lower on a buying spree by pension funds and other institutions. The key index fell below the 1,700-point level during the session for the first time since July last year. On Monday, the KOSPI lost 3.82 percent.
Meanwhile, Kim told lawmakers that the FSC is carefully considering imposing a ban on short selling of local stocks. Short selling is the sale of shares by borrowing them in anticipation of price falls.
At the height of the 2008 global financial crisis, South Korea imposed a temporary ban on short selling in an effort to prevent the trading practice from battering the local bourse. In June 2009, the FSC lifted the ban on short selling of non-financial stocks.
According to the financial watchdog, the value of short selling reached 454.2 billion won on Friday and 320.7 billion won on Monday.
In an apparent move to back up the Seoul stock markets, the National Pension Service (NPS), the world's fourth-largest pension fund, said it is mulling boosting its investment in the local stock markets.
"From a longer perspective, we think that the recent development is a chance to hunt for bargains on blue chips. We plan to hold a meeting later in the day to make some change in our monthly investment plan," said an official at the NPS, which had 339 trillion won (US$311.7 billion) worth of assets under its management as of end-April.
The local currency has depreciated to the dollar for the sixth straight session as global recovery woes revived investors' appetite for safe assets. The Korean won has lost about 3.4 percent to the greenback since Aug. 2.
Global credit rating agency S&P cut the U.S. credit rating by one notch to "AA+" from a top-tier "AAA" on Friday, sending global financial markets into a tailspin.
sooyeon@yna.co.kr