(Bloomberg) -- South Korea’s top financial watchdog attempted to revive optimism over the nation’s corporate reform initiatives to investors in New York while soothing concerns over the short-selling ban.

Governor Lee Bokhyun of the Financial Supervisory Service reiterated the government’s commitment to boosting corporate value and shareholder returns in a speech last week to more than 200 investors and analysts including those from Morgan Stanley and JPMorgan Chase & Co.

His remarks come at a crucial time for South Korean markets as the ruling party’s parliamentary defeat in April risks derailing the momentum for the “Corporate Value-up” plan. South Korea also faces the challenging task of resuming short-selling in an orderly manner to not disrupt the stock market while appeasing global investors who have bemoaned the ban on a key trading strategy.   

“Before the end of June, we plan to share the schedule and whether or not short-selling will be resumed,” Lee said at the Invest K-Finance: New York IR 2024 event at Conrad New York Downtown on Thursday. The government will inform the market on “how it will be resumed, and if it cannot be resumed when it can be normalized in the fastest way,” Lee added. 

Lee said he “strongly agrees” that short-selling should be resumed given the government’s commitment to resolving the local stock market’s discount over peers. In comments to reporters, the governor added that it’s his “personal desire and plan” to see the ban partially lifted in June. 

South Korea has banned short-selling since November with the goal of rooting out naked short sales, which is illegal in the country. While the government initially said the restrictions will remain in place until the end of June, it has since been mum on the time frame.

The ban, while welcomed by retail investors, has been controversial among the global investor community as the practice remains legitimate in many markets. 

Global investors have added more than $15 billion worth of local equities on a net basis so far this year, set for the biggest annual inflow since 2010 if the trend continues. 

Part of the inflows have been triggered by the Value-up plan, with investors hoping for a rally akin to the one in Japan where corporate reforms helped engineer a bull market. Yet others remain skeptical on the South Korean proposal, which was seen as lacking both initiatives and penalties.

The event in New York was joined by Korea Exchange CEO Jeong Eun-bo, and leaders from South Korean financial firms including KB Financial Group Inc., Shinhan Financial Group Co. and Mirae Asset Securities Co. 

In other key comments, Lee said: 

  • The government is reviewing details on how to reduce corporate tax for companies actively participating in the Value-up program
  • The FSS is “actively” encouraging Korean banks to increase shareholder returns. As “once-a-year dividend could give a shock to the stock market with the ex-dividend date,” the government is “recommending quarterly dividends or share buyback”
  • Government plans to set policy direction on corporate governance reforms when the new parliamentary session kicks off
  • Lee believes a revision of the commercial law is necessary to say that the board’s fiduciary duty is to act in the interest of shareholders, rather than for the company. The government will start public discussions on the topic
  • While reforming the entire inheritance tax structure may be challenging, there have been discussions among policymakers on how to improve the system related to corporate succession
  • It’s necessary to change the situation where more companies are getting listed than those being delisted
  • Windfall tax is “bad” and “makes no sense,” and could distort markets
  • South Korean financial firms’ exposure to the commercial real estate market in the US and Europe is “significantly small relative” to their overall asset size with varying maturities and investment structures. Some losses are inevitable, but they won’t be an immediate risk for financial firms

(Adds more comments from Lee in fifth paragraph, third and fourth bullets)

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