[Inside Chodong] What NextTrade Needs for Its Next Step

With the launch of Korea's first Alternative Trading System (ATS), 'NextTrade,' the era of multiple exchanges has begun. Despite mixed expectations and concerns, NextTrade appears to have gotten off to a smooth start. In its first week, the trading volume reached 79.91329 billion KRW, accounting for 33.82% compared to the Korea Exchange's 236.29662 billion KRW. Although only 10 stocks were traded during the first two weeks after its launch, the number of tradable stocks increased to 110 starting from the 17th. From the fourth week after launch, beginning next week, the number of tradable stocks will expand to a total of 350, allowing major KOSPI stocks such as Samsung Electronics and SK Hynix to be traded.

The launch of NextTrade has also brought changes to individual stock investments. With the extended trading hours enabled by NextTrade, stock trading is now possible even after work hours. On NextTrade, stock trading is available for 12 hours, from 8 a.m. to 8 p.m. Reflecting this, individual investors accounted for 97.85% of the total trading volume in the first week of NextTrade's launch, amounting to 78.19391 billion KRW.

Although NextTrade has had a smooth start, there are still several issues that need to be addressed. Securing system stability is the most urgent task. In the early days after launch, some major securities firms experienced delays in trade execution inquiries, and there were errors in calculating securities transaction taxes. Due to system deficiencies, large-volume and basket trades have been delayed in operation. NextTrade had planned to open the large-volume and basket trading market on the launch day, the 4th, but it has yet to be operational. It was confirmed before the opening day that the 'circuit breaker' system in NextTrade's large-volume and basket trading was not functioning properly. During a stock price decline simulation, even though the Korea Exchange's circuit breaker was triggered, large-volume trades on NextTrade were executed as usual, causing problems.

On the 17th, a computer system failure at the Korea Exchange caused stock trading on the KOSPI market to halt for seven minutes. This incident was found to be due to an error in the mid-price quote system introduced alongside the launch of NextTrade. The exchange explained that the introduction of the mid-price quote conflicted with the existing self-trade prevention conditional quote execution logic, resulting in the system failure. While trading on NextTrade proceeded normally, the unprecedented trading suspension incident inevitably raised concerns about the overall stock trading systems of both the Korea Exchange and NextTrade.

Low participation from foreign and institutional investors is also a challenge. While individual trading accounted for nearly 98% in the first week, institutions traded only 1.2 billion KRW (1.58%), and foreigners traded 400 million KRW (0.58%).

Among individual investors, who make up the overwhelming majority of trading volume, there are voices of dissatisfaction. They are experiencing inconvenience due to unfamiliar situations brought about by the new system. Additionally, the low trading volume in the pre-market and after-market sessions before and after the opening causes sharp price fluctuations even with just one share, confusing investors.

The introduction of a completely new system that did not exist before inevitably involves some degree of confusion. Time is needed to adapt to an environment that has never been experienced. Since NextTrade is still in its early stages, it will inevitably take time to stabilize. The key is to shorten this period of inconvenience and confusion as much as possible. If the period of discomfort and confusion is prolonged, it is obvious that investors will turn away.

The alternative trading system was introduced to enhance capital market efficiency through competition in the securities distribution market and to expand investor convenience. NextTrade must quickly stabilize its system and resolve investors' anxiety and dissatisfaction to prove its raison d'?tre.