"What Is This?" Even Samsung Electronics Hits Sudden Price Floor... Investors Anxiously Watch Stock Apps During Commutes [Nextrade 1st Anniversary]②

Challenges Behind the Growth

The Samsung Electronics Lower Limit Incident in Early Trading on February 6

Criticism Over "Need for Stronger Volatility Mitigation Measures"

Concerns Over Increased Fatigue From Extended Trading Hours

As one year has passed since the launch of the alternative trading system NextTrade (NXT), there are assessments that it has achieved some of its initial goals, such as extended trading hours, reduced transaction fees, and increased competition among exchanges. However, various issues have also emerged, including a sharp increase in stock price volatility and price distortion, leading to growing calls for urgent solutions. The increase in fatigue among investors and securities industry professionals due to the rapid extension of trading hours is another challenge that needs to be addressed.

Employees are commuting to Samsung Electronics Seocho Office in Seoul.

The Samsung Electronics Price Floor Incident Without Cause... Need for Volatility Mitigation Mechanisms

According to the financial investment industry on March 3, on February 6, major domestic large-cap stocks such as Samsung Electronics, Kia, and Hanwha Ocean temporarily hit their lower price limits during the opening minutes of NextTrade at 8 a.m. On that day, Samsung Electronics fell 29.94% compared to the previous trading day as soon as NextTrade opened, with 4,525 shares traded. Hanwha Ocean also saw 2,500 shares executed at -30%. Kia and Doosan Enerbility also saw some trades executed at their lower price limits.

As ultra-large-cap stocks like Samsung Electronics, whose market capitalization exceeds 1,000 trillion won, hit lower limits without any particular negative news, criticism has mounted that NextTrade lacks sufficient volatility mitigation systems. Unlike Korea Exchange, which uses a call auction system that collects orders over a certain period and determines the opening price at a balanced price, NextTrade determines opening prices through a continuous trading system. In continuous trading, trades are executed immediately when buy and sell orders match. While this allows information to be reflected in prices quickly, it also has the side effect that a single share can set the upper or lower price limit. It is believed that the lower limit incidents occurred due to one-off investor orders in thin order books during the initial opening phase.

In fact, upper and lower price limit incidents without clear reasons have occurred frequently on NextTrade. According to data received by Assemblyman Heo Young of the National Assembly's Political Affairs Committee from NextTrade, there were 335 cases of upper and lower price limit incidents in the pre-market from March last year to February 6 this year. Among these, there were 227 cases (153 upper limit, 74 lower limit) where the opening price itself was set at the upper or lower limit.

Even stocks with large market capitalizations were easily executed at upper and lower limits. Among the top 20 KOSPI stocks by market capitalization, SK Hynix (twice) and HD Hyundai Heavy Industries (once) recorded opening prices at the upper limit, while Doosan Enerbility (twice), Kia (once), and Hanwha Aerospace (once) recorded opening prices at the lower limit.

NextTrade has also acknowledged these issues and announced that it will begin institutional improvements starting in September this year. The company plans to introduce a "static volatility interruption (VI)" mechanism, which will halt trading for two minutes if a stock price fluctuates by more than 10%, and to switch to call auction trading for two minutes if either a dynamic or static VI is triggered. Currently, only a dynamic VI-which halts trading for two minutes if there is a sudden price change of 3-6% from the previous execution price-is in place, leading to criticism that investor protection is insufficient. A NextTrade representative explained, "Since we accept real-time trades through a continuous trading system without a call auction, such incidents seem to have occurred. After the institutional improvements, we expect the number of cases of sharp price changes to decrease."

Investors and Industry Professionals Cannot Avoid Increased Fatigue Due to Longer Trading Hours

The dramatic extension of trading hours is cited as the biggest achievement since the launch of NextTrade, but at the same time, it has become a 'double-edged sword' that has led to increased fatigue among stock investors and securities industry employees. While the launch of NextTrade has allowed stock trading for a total of 12 hours a day, this also means that the time investors are exposed to market volatility has doubled.

With the extended trading hours, many stock investors have made it a routine to watch the order book before and after work, increasing their exposure to market volatility. A financial investment industry official noted, "While longer trading hours do help investors trade more flexibly, for individual investors who have less access to information than foreigners or institutions, it can actually increase psychological pressure by adding more variables they need to respond to."

The growth of NextTrade has also led to a power struggle with the existing market leader, Korea Exchange. In particular, Korea Exchange's plan to introduce '24-hour stock trading' in response to NextTrade has met with resistance from the securities industry. Securities firms are concerned about a sharp rise in labor costs and IT system maintenance expenses.

Labor unions such as the Financial Industry Union are also strongly opposed, citing increased work intensity, and considerable social conflict is expected before any consensus is reached on extending trading hours. A representative of the National Office & Financial Services Workers' Union emphasized, "There is little basis to the claim that extending trading hours will invigorate the stock market; it will only increase fatigue among securities industry workers. Any plan to extend trading hours that fails to protect financial investors and worsens the lives of securities workers should be halted immediately."

Seongbok Lee, Senior Research Fellow at the Korea Capital Market Institute, stated, "Extending trading hours can improve market accessibility for domestic and foreign investors, thereby increasing market liquidity and enhancing market efficiency." However, he also pointed out, "As market liquidity is dispersed across different time zones, price distortion may occur, and the overall price discovery function of the market may be weakened." Nevertheless, he argued, "Despite some negative effects, the Korean stock market needs to extend trading hours further to improve accessibility for foreign investors."

This content was produced with the assistance of AI translation services.