Leaving work by 8 PM becomes possible for stock investment [Era of Multiple Exchanges]

With ATS Introduction, Multiple Exchange System
Trading of Over 800 KOSPI and KOSDAQ Stocks
Commission Fees Also Reduced

Office worker Lee Hye-jung (41, pseudonym) commutes by car from her home in Mapo, Seoul to her workplace in Yeouido, listening to stock-related YouTube videos during spare moments. Although she decides which stocks to buy through YouTube, she often misses the buying timing due to her busy schedule, leaving her frustrated. Upon hearing the news of the launch of the Alternative Trading System (ATS), she expressed her anticipation, saying, "In the past, even if I had stocks in mind, I often couldn't buy them or ended up chasing after stocks at already increased prices, which felt uncomfortable. Now, I’m glad that I can freely invest in stocks after work."

With the Introduction of Pre-market and After-market, Trading Hours Will Increase by a Total of 5 Hours and 30 Minutes... Introduction of Mid-price Orders and Stop Limit Orders

The biggest change that the stock market will experience when NextTrade, an ATS, launches on March 4 next year is the trading hours. Once the alternative trading system operates, in addition to the current regular market hours from 9:00 AM to 3:20 PM, there will be a △ pre-market from 8:00 AM to 8:50 AM △ and an after-market from 3:30 PM to 8:00 PM. This means the total trading hours will increase by 5 hours and 30 minutes. During the KRX’s single-price trading sessions from 8:30 AM to 9:00 AM and 3:20 PM to 3:30 PM, immediate trades can also be executed through the ATS. With stock trading available until 8:00 PM, office workers who used to invest by sneaking into restrooms during work hours will be able to freely invest in stocks after work.

The types of orders will also diversify. Currently, the stock market offers market orders and four types of limit orders: general, best priority, most favorable, and conditional. Among these, mid-price orders and stop limit orders will be newly introduced. These new order types will apply not only to ATS but also to KRX. A mid-price order means that the price is adjusted to the midpoint between the best bid and best ask prices. In other words, the midpoint between the prices at which sellers want to sell and buyers want to buy is displayed. For example, if an institution places a limit sell order for 2,000 shares of Samsung Electronics at 79,800 KRW and the best bid price from investors is 79,700 KRW, the order will be executed at the midpoint price of 79,750 KRW. The introduction of mid-price orders is expected to increase the likelihood of trade execution and enable investors to employ various investment strategies.

Stop limit orders are a method where an investor places a limit order once the current stock price reaches a specific price. For example, for a stock currently priced at 20,000 KRW, an order can be placed to buy at a limit price of 21,500 KRW once the market price reaches 21,000 KRW. This type of order is linked to the market price and is expected to be used for stop-loss and dollar-cost averaging strategies.

Trading commission fees are also expected to be reduced. ATS plans to lower trading commission fees by 20-40% compared to KRX. However, immediately after the ATS opens, only about 800 highly liquid stocks from KOSPI and KOSDAQ will be tradable. The government aims to operate a multiple exchange system to encourage fee competition among exchanges, but it may be difficult for individual investors to feel the impact since KRX’s trading fee (0.0027%) is already low. Nonetheless, these changes are expected to induce changes in financial firms’ fee policies.

Stock Market Stimulus Effect is 'Questionable'... Can Satisfy Diverse Investor Needs

However, the securities industry believes that the introduction of alternative trading systems will have little effect on stimulating the Korean stock market. There is no guarantee that extended trading hours and new types of orders will necessarily lead to increased trading volume and stock price rises. In August 2016, the government extended trading hours from 3:00 PM to 3:30 PM to enhance the competitiveness of the Korean stock market, but trading volume actually decreased after the extension. At that time, the KOSPI’s average daily trading volume dropped by 17.5% annually compared to before the extension, and KOSDAQ also decreased by 1.15%.

Korea ECN Securities, established in December 2001 as an over-the-counter electronic trading market in line with international trends, also closed in May 2005 due to sluggish trading, contrary to initial expectations. Nam Gil-nam, senior researcher at the Korea Capital Market Institute, said, "Unlike the U.S. ECN, which generally had price discovery functions, Korea ECN Securities was permitted to operate as a night market where trading was only possible at the closing price of the regular market between 4:30 PM and 9:00 PM after regular trading hours ended. It remained in a supplementary position rather than competing with the regular market, ultimately failing to attract investor interest and unable to innovate trade execution services."

There is also a view that once a multiple trading market system is established, it can satisfy diverse investor demands and reduce trading costs. Kim Nam-jong, researcher at the Korea Institute of Finance, said, "If competition among multiple trading facilities intensifies, securities trading costs will decrease, and qualitative improvements in order execution can be achieved in various aspects beyond price, such as execution probability, speed, and order types. ATSs are broadly meeting investor demands through various types of securities trading and trading methods differentiated from regular exchanges."