[Exclusive] Alternative Exchange to Apply for Approval Within Q3... Over 30 Small and Medium Securities Firms Participating

Korea Exchange Seoul Headquarters.
[Photo by Yonhap News]

[Asia Economy Reporter Lee Seon-ae] The establishment of an Alternative Trading System (ATS) is progressing rapidly. It has been confirmed that small and medium-sized securities firms have also expressed their intention to participate in the ATS Establishment Preparation Committee, which currently includes the Korea Financial Investment Association and seven major securities firms. As discussions on the shareholding structure gain momentum, it is expected that a preliminary approval application can be submitted to financial authorities within the third quarter. Accordingly, the ATS establishment is anticipated to take place as early as 2024.

According to the financial investment industry on the 26th, in addition to the seven securities firms participating in the ATS Establishment Preparation Committee alongside the Korea Financial Investment Association (KB Securities, NH Investment & Securities, Mirae Asset Securities, Samsung Securities, Shinhan Financial Investment, Kiwoom Securities, Korea Investment & Securities), numerous small and medium-sized securities firms have also expressed their intention to participate. As a result, the total number of participating securities firms, including the 'Big 7,' is expected to exceed 30. A representative from the Korea Financial Investment Association stated, "Small and medium-sized securities firms have all expressed their intention to participate," adding, "While it may be difficult to apply for preliminary approval in the first half of the year, it should be possible within the third quarter." Accordingly, detailed discussions on matters such as capital contributions by securities firms will proceed sequentially.

An industry insider familiar with this issue also hinted, "It can be said that all securities firms located in Yeouido are participating in the ATS Establishment Preparation Committee," adding, "Once finalized, the number of participating securities firms will exceed 30."

Discussions on finalizing the shareholding structure are also progressing swiftly. The 'Big 7' securities firms will each hold shares just under 10%. Although there may be slight differences, the average is estimated to be around 8%. The remaining shares will be divided among small and medium-sized securities firms. Each firm's shareholding is expected to be smaller than that of the major securities firms.

The establishment of an ATS has been steadily attempted since the legal basis was established in 2013, but it failed to gain momentum due to trading volume regulations, concerns over profitability, and opposition stemming from political interests. In 2019, the ATS Establishment Review Committee was formed. This organization was created by major securities firms and the Korea Financial Investment Association to prepare for the establishment of an alternative trading system to compete with the Korea Exchange, which operates under a near-monopoly.

However, the three-year preparation process was slow. There were views that domestic securities firms were negative about establishing an ATS due to concerns over shareholder value dilution, as they are shareholders of the Korea Exchange. In fact, among the securities firms participating in the ATS Establishment Committee, six out of seven, excluding Kiwoom Securities, as well as the Korea Financial Investment Association, are shareholders of the Korea Exchange. The combined shareholding of these entities in the Korea Exchange amounts to 26.46%.

Nevertheless, as several securities firms have recently expressed their intention to participate, it is expected that once the shareholder composition is finalized, a preliminary approval application can be submitted within the third quarter. However, financial authorities have yet to establish guidelines. The preliminary approval application will be submitted after the guidelines are announced. The financial authorities' guidelines are expected to be released within the first half of the year. These guidelines will include requirements such as the construction of the ATS’s IT system and human and physical resource conditions. Since the approval of the preliminary license typically takes about six months and the main license process follows, the establishment of the ATS is projected to occur as early as 2024.

Meanwhile, the ATS is analyzed to enhance investor convenience by expanding securities trading hours, offering lower fees, providing diverse financial products, and enabling convenient trading methods. At the same time, it is expected to alleviate the industry's fee burden and secure its own profitability. Competition among exchanges is anticipated to lower fees, and trading will be possible during nighttime hours outside of regular trading hours, thereby raising the level of capital market infrastructure.