FSC chief urges caution on activating stock stabilization fund

South Korea's financial regulator chief on Friday cautioned against activating the country's stock market stabilization fund in response to ordinary market swings, saying it should be reserved for exceptional circumstances involving urgent market risks.

Financial Services Commission Chairman Lee Eog-weon made the remarks at a capital market policy meeting chaired by President Lee Jae Myung at the Korea Exchange in Seoul, after market participants called for the fund's activation to help curb stock market volatility.

Kim Jin-wook, a senior executive at Citibank Korea, argued that activating the fund could help restore investor confidence, saying, "The market needs a strong signal from the government to contain volatility."

Lee Eog-weon said, "The fund, established in 2000 and repeatedly extended since, remains ready for activation through a capital-call mechanism," under which participating institutions provide funds when needed.

However, he questioned whether market volatility alone should warrant its deployment, saying, "Whether the fund should be activated whenever there is volatility or only when systemic risks emerge in the market requires further discussion."

"The fund is designed for highly urgent, temporary and exceptional circumstances," he added.

Asked by the president whether concerns about government intervention and the risk of undermining market confidence had made authorities reluctant to use the fund, Lee agreed.

President Lee called for a review of "how the fund could be made more effective, what its appropriate size should be and whether alternative mechanisms are needed."

Separately, Lee Seung-woo, a senior Financial Supervisory Service official overseeing disclosure and investigations, proposed expanding earnings calls to improve communication between companies and shareholders.

"Companies need to do more to explain their earnings outlook and how profits will be shared with shareholders," he said. "Earnings calls, through which executives directly answer investors' questions following results announcements, could be one way to achieve this."