[Exclusive] 30 Securities Firms Added to ATS Shareholder List... The End of 67 Years of Korea Exchange Monopoly (Comprehensive)

ATS Establishment Committee Sees Unified Participation from Small and Medium Securities Firms
Preliminary Approval Applications to Financial Authorities Planned Within Q3

[Image source=Yonhap News]

[Asia Economy Reporter Lee Seon-ae] As the establishment of Korea's first alternative trading system (ATS) to compete with the Korea Exchange (KRX) is underway in earnest, the 67-year monopoly era of the exchange, which has lasted since 1956, is coming to an end, and a new competitive system is expected to be formed. Small and medium-sized securities firms have collectively expressed their intention to participate in the ATS Establishment Preparation Committee, which currently includes the Korea Financial Investment Association and seven major securities firms, and based on this, the ATS Establishment Committee plans to apply for preliminary approval from financial authorities within the third quarter. The industry expects the establishment of the ATS to revitalize the stock market.

According to the financial investment industry on the 27th, in addition to the seven securities firms participating in the ATS Establishment Committee along with the 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 will increase to more than 30. In effect, almost all securities firms in Yeouido will be listed as shareholders of the ATS. This means starting from an equal footing with the shareholder composition of the Korea Exchange (which has 33 shareholders from securities firms and other financial investment industry players). A Financial Investment Association official said, "Small and medium-sized securities firms have all expressed their intention to participate," adding, "The preliminary approval application will be submitted within the third quarter." Accordingly, detailed discussions on matters such as capital contributions from securities firms will proceed sequentially.

Discussions on finalizing the shareholding structure are also progressing rapidly. Although there may be slight differences, major securities firms will hold an average of 8%, while the remaining shares will be held by small and medium-sized securities firms at an average of about 3% each.

ATS refers to various types of exchanges that replace the stock trading functions of regular securities exchanges. Unlike regular exchanges, ATS do not perform functions such as listing reviews or market surveillance but only handle stock trade executions. In the United States and the European Union (EU), ATS are highly active, with about 50 and 200 ATS respectively.

In Korea, the legal basis for establishing ATS was created with the revision of the Capital Markets Act in 2013, but until 2019, discussions on establishment were sluggish due to trading volume regulations, concerns about profitability, and opposition stemming from political interests. In 2019, momentum for promotion was regained, and the ATS Establishment Committee was formed, an organization created by major securities firms and the Financial Investment Association. However, the three-year preparation process was slow. It is also analyzed that securities firms were negative about establishing ATS due to shareholder value dilution, as they are shareholders of the Korea Exchange.

Among the securities firms participating in the ATS Establishment Committee, excluding Kiwoom Securities, the combined shareholding of the six firms and the Financial Investment Association in the Korea Exchange amounts to 26.46%. As of the end of last year, the shareholder status of the Korea Exchange is as follows: KB Securities 6.42%, Meritz Securities 5.83%, NH Investment & Securities 5.45%, Hanwha Investment & Securities 5%, Yuanta Securities 3.46%, Hana Financial Investment 3.29%, Mirae Asset Securities 3.23%, Daishin Securities 3.2%, Korea Investment & Securities 3.2%, Shinhan Financial Investment 3.16%, Sangsangin Securities 3.12%, Eugene Investment & Securities 3.04%, Shinyoung Securities 3.01%, Bookook Securities 2.98%, Samsung Securities 2.95%, Kyobo Securities 2.94%, Yuha Securities 2.92%, Hanyang Securities 2.89%, Hyundai Motor Securities 2.87%, SK Securities 2.86%, DB Financial Investment 2.83%, KR Investment & Securities 0.07%, BNK Investment & Securities 0.40%, etc.

Recently, several securities firms have expressed their intention to participate, so once the shareholder composition is finalized, the preliminary approval application is expected to be submitted within the third quarter. However, the financial authorities' guidelines have not yet been established. Therefore, the preliminary approval application will be submitted after the announcement of the guidelines. The financial authorities' guidelines are expected to be released within the first half of the year. The Financial Supervisory Service is currently accelerating the final work by forming an ATS task force (TF) together with the Financial Services Commission and the Capital Market Research Institute. The guidelines will include requirements such as the establishment of the ATS IT system and personnel and physical conditions. Since the approval of preliminary authorization typically takes about six months and the main authorization process remains afterward, the establishment of the ATS is anticipated in the first half of 2024.

Experts expect that the introduction of ATS will create a competitive structure among exchanges, leading to positive effects such as reduced trading fees, extended trading hours, and improved trading speed. If stock trading becomes possible during nighttime hours outside the regular trading hours (9:00 AM to 3:30 PM), domestic investors will be able to invest by reflecting overseas market conditions in the US, Europe, and other regions.

The Korea Exchange is also showing a positive attitude toward the establishment of ATS, unlike in the past. Since the exchange's stock trading fee is already low at 0.0027%, it is competitive, and the creation of a competitive market is seen as reducing the burden of public institution designation. However, it insists on applying the principle of equal functions and equal regulations. It is expected that the Korea Exchange will cede 15-30% of stock trading volume to the ATS.