Preemptive Action Ahead of Capital Markets Act Regulation Next Month
'Unexpected Rapid Growth': August Trading Value Reaches Half of KRX
NextTrade, the alternative trading system (ATS) that ushered in an era of multiple competitors in the stock market, has decided to suspend trading for a large number of listed stocks. As its market share has risen at a pace exceeding expectations, the company has resorted to the drastic measure of halting trading to avoid violating the '15% trading volume limit rule.'
On August 18, NextTrade announced that, in the first phase, 26 stocks including YG PLUS will be excluded from both the regular market and closing auction trading from August 20 to September 30. In a second phase starting September 1, trading for an additional 53 stocks, including Pulmuone, will also be temporarily halted. These stocks will not be available for trading in the pre-market session, which runs from 8:00 a.m. to 8:50 a.m., nor in the after-market session, which continues until 8:00 p.m. after the regular session.
A NextTrade representative stated, "This is a measure to ensure that we do not exceed the trading volume threshold for multilateral trading facilities as stipulated by the Enforcement Decree of the Capital Markets Act," adding, "Depending on future trading conditions, additional stocks may be excluded, or the exclusion period may be extended." While major stocks included in the KOSPI 200 and KOSDAQ 150 indices will continue to be traded, trading in other stocks will be halted as needed to ensure that the so-called '15% rule' is not violated.
The current Enforcement Decree of the Capital Markets Act stipulates that, for alternative trading systems, the average daily trading volume over the past six months, as of the end of each month, must not exceed 15% of the total market trading volume. Since NextTrade, which launched on March 4 of this year, will be subject to this regulation for the first time on September 30, concerns have been raised that a violation of the '15% rule' could trigger serious disruption. As a preemptive measure, NextTrade has moved to limit trading volume.
Since its launch and up to August 14, NextTrade's average daily trading volume has been about 180,000 shares, accounting for 11.4% of the total market volume. However, most in the financial investment industry predict that, if the current pace continues, the 15% threshold will be surpassed sometime next month. In fact, as of August 14, NextTrade's average daily trading volume for August stood at 20.12 million shares, or 14.4% of the Korea Exchange's trading volume of 119.808 million shares. In terms of trading value, NextTrade recorded 8.0184 trillion won, which is 49.6% of the Korea Exchange's trading value of 16.1765 trillion won for the same period.
Under the current Smart Order Routing (SOR) system, where orders are routed to whichever venue offers the best terms for investors between the Korea Exchange and NextTrade, most individual investors may not even notice the trading suspension. However, as the trading volume cap is likely to be reached repeatedly in the future, there are growing calls for prompt countermeasures. Since the Korea Exchange is considering extending its trading hours to 12 hours to match NextTrade's as early as the end of this year, there is also a possibility that NextTrade's trading volume will naturally converge to below the 15% threshold.
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