The head of South Korea’s financial regulator said Thursday that he expects to see a greater inflow of foreign capital to the nation’s stock market with the reactivation of short selling activities next month.

“Resumption of short-selling signifies that the market is going back to normalization and (I hope) foreigners to return to the market,” said Financial Services Commission Chairman Eun Sung-soo in an impromptu meeting with reporters.

While the government is set to implement a partial resumption of stock short selling May 3, some market watchers have forecast increased net inflows of foreign investment. Eun agreed, saying that “it’s a good sign.”

“The volume of short sales often tends to increase when allowing the (short selling) activities, which becomes an unstable market factor. We’ll see how it turns out to be this time.”

The remark came as Eun met with heads of the bourse operator and brokerages to review policies and related systems.

Attendees included Korea Exchange Chairman Sohn Byung-doo, Korea Financial Investment Association Chairman Na Jae-chul, Korea Securities Finance Corp. CEO Yoon Chang-ho, Hana Financial Investment CEO Lee Eun-hyung and KB Securities co-CEO Park Jeong-rim.

The FSC chief also stressed the importance of stamping out unfair trading, especially since the country’s tech-heavy Kosdaq index recently recovered the 1,000-point threshold after nearly 21 years.

“Even I sometimes receive text messages suggesting investments in certain listed stocks. We’ve put much efforts to root out such illegal actions from the local stock market. We’ll further fulfil our task to improve systems and regulations such as introducing penalty on unfair trading and preventing quasi-investment advisers’ illegal activities,” Eun said.

“Amid the market rallies around the globe, retail investors seek investment opportunities not only from the local market but also globally. Local firms with high growth potential also consider direct listing abroad,” he added, while asking the KRX to seek every possible way to attract companies to list locally and provide broader investment opportunities to investors.

To detect illegal short selling activities, the country’s sole bourse operator has established a separate team and monitoring system. If retail investors wish to engage in short sales, they are required to complete an orientation. A system for virtual investment is also set to begin Tuesday.

By Jie Ye-eun (yeeun@heraldcorp.com)