Lee Eog-weon Urges Caution on Activating Stock Market Stabilization Fund, Citing Exceptional Use in Emergencies

[Financial News] Financial Services Commission Chairman Lee Eog-weon said on the 13th that the framework for activating the stock market stabilization fund (stabilization fund) was in place, but that the timing should be carefully considered because it is a tool to be used temporarily and exceptionally in emergencies.
At a capital market policy meeting chaired by President Lee Jae Myung that morning at the Korea Exchange in Yeouido, Seoul, a proposal was made for the government to use the stabilization fund to reduce stock market volatility. Kim Jin-wook, a senior executive at Citibank Korea, urged the fund’s activation, saying, “This is the time when a strong signal is needed from the government that it will further reduce volatility.”
The FSC chairman replied, “The stabilization fund, which was established in 2000, has been extended continuously, and because it operates on a capital-call basis, the framework is in place to activate it if necessary.” A capital call is a method in which investors pay in their committed contributions when funds are actually needed, up to the agreed limit.
President Lee asked, “Fundamentally, there are views about whether this is being introduced to stabilize the market or amounts to market intervention. Isn’t it being held back out of concern that it could fuel distrust in the market?” The FSC chairman replied, “That’s right.”
The FSC chairman said they should discuss “whether the fund should be activated whenever there is volatility, or only when it reaches the level of systemic risk to the market.” He added, “That’s because the stabilization fund is activated in highly urgent, temporary, or exceptional circumstances.”
President Lee said, “We need to review whether there is a way for it to work effectively, what size would be appropriate, and whether there might be new approaches.”
A proposal was also made to introduce “earnings calls,” in which companies directly answer shareholders’ questions when announcing their results. Lee Seung-woo, an assistant governor for disclosure and investigation at the Financial Supervisory Service, said that to strengthen shareholder-focused management, companies need to communicate directly with shareholders about their earnings outlook and how profits are returned to shareholders.
“There are companies whose results have improved markedly recently, but whose share prices have actually retreated,” Lee said. “This means the market considers not only current profits, but also whether profits can continue to grow and how much of those profits shareholders can receive.”
He continued, “If so, companies now need to provide shareholders with sufficient information on these matters,” adding, “An earnings-call system in which companies answer shareholders’ questions directly while announcing their results could be one alternative.” He added, “Earnings calls are common practice for a considerable number of companies listed on the S&P 500 in the United States,” and said, “Companies need to proactively communicate the information shareholders want in a polished way.”

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