Korea's first alternative exchange, 'NXT,' will launch on the 4th. The market expects that the emergence of alternative exchanges will lead to effects such as reduced fees. However, as this is the first instance of a multiple exchange system with NXT and the Korea Exchange (KRX), some investors are feeling confused.
From the perspective of individual investors, the most important aspect is that they can conduct stock transactions for 12 hours a day from 8 a.m. to 8 p.m. through major securities firms servicing NXT. Additionally, investors must agree to terms in advance to trade under more favorable conditions through either NXT or the Korea Exchange. Furthermore, five key points that investors need to know have been summarized.
① Additional pre-and after-market trading for 12 hours a day
Regular trading hours remain from 9 a.m. to 3:30 p.m. (including the closing price single price). In addition, through NXT, the pre-market (from 8 a.m. to 8:50 a.m.) and after-market (from 3:30 p.m. to 8 p.m.) will be open. For reference, in the after-market, only bids will be accepted from 3:30 p.m. to 3:40 p.m. for 10 minutes, and transactions will occur from 3:40 p.m.
With the introduction of the after-market, only stocks other than those traded on NXT can be traded in the Korean Exchange's off-hours single-price market (4 p.m. to 6 p.m.).
Another point to keep in mind is that the final trading price in the after-market will not serve as the reference price for the next day's pre-market. Regardless of the price at 8 p.m., the reference price at 8 a.m. the next day will be based on the closing price of the Korea Exchange (3:30 p.m.).
In the pre-and after-market, short-selling transactions will not be allowed even after the resumption of short-selling trading at the end of March. Additionally, unlike in the regular market, only limit orders, best limit orders, and priority limit orders can be placed.
A limit order specifies the stock, quantity, and price. Best limit orders and priority limit orders share the feature of specifying the stock and quantity, but not the price. However, as the name implies, a best limit order focuses on the price, while a priority limit order centers on execution probability.
In short, if a purchase order is submitted with a best limit order, it is specified at the lowest selling price at the time of receipt, and if a purchase order is placed with a priority limit order, it is specified at the highest buying price at the time of receipt.
For reference, both exchanges will generate new bids during regular hours. The midpoint bid allows orders to be placed at the middle price between the highest bid from buyers and the lowest bid from sellers. This can be utilized when attempting to purchase stocks at a reasonable price.
A stop limit order is executed at the input limit price when the market price reaches a pre-set stop price set by the investor. Stop limit orders can be utilized for loss cuts or partitioning.
② Currently, 10 stocks can be traded on NXT
Not all stocks listed on the Korea Exchange can be traded on NXT. For the first two weeks after launch (March 4-14), a total of 10 stocks will be available for trading: five from KOSPI, including Lotte Shopping, Cheil Worldwide, Kolon Industries, LG Uplus, and S-Oil, and five from KOSDAQ, including GOLFZON, Dongkook Pharmaceutical, SFA Engineering Corporation, YG Entertainment, and Com2uS.
NXT plans to increase the number of traded stocks to 110 in the third week, 410 in the fourth week, and 800 in the fifth week. For instance, major stocks in the KOSPI market, such as Samsung Electronics and SK hynix, as well as KOSDAQ's leading stock Alteogen, will be available for trading on NXT starting from the 24th.
Exchange-traded funds (ETFs) and exchange-traded notes (ETNs) require separate approval and are expected to be traded on NXT starting in 2026.
③ 28 securities firms will offer NXT trading
Investors do not need to log in separately to trade on NXT. As before, when placing buy or sell orders, the securities firms will handle it automatically. However, not all securities firms participate in NXT trading.
There are 14 securities firms participating in the pre-market, regular market, and after-market. These include Kyobo Securities, Daishin Securities, Mirae Asset Securities, Samsung Securities, Yuanta Securities Korea, Kiwoom Securities, Kakao Pay Securities, Hanwha Investment & Securities, NH Investment & Securities, Hyundai Motor Securities, KB Securities, LS Securities, and NH Investment & Securities.
The other 14 securities firms have decided to initially participate only in the pre-market and after-market. This means they will only place orders during regular trading hours with the Korea Exchange. These firms include DAOL Investment & Securities, MERITZ Securities, BOOKOOK Securities, Shinyoung Securities, Shinhan Investment & Securities, Eugene Securities, Kakao Pay Securities, CAPE, Hanyang Securities, BNK Investment & Securities, DB Financial Investment, IBK Securities, iM Securities, and SK Securities.
Investors using the 28 other securities firms will continue to place orders only through the Korea Exchange as before. They cannot participate in the pre-and after-market. NXT stated that the market share of participating securities firms was 87.4% (based on transaction value) last year.
④ Participation in NXT trading requires selection
When an investor presses the buy or sell button, the securities firm uses the Smart Order Routing (SOR) system to place the order at the more favorable option between the Korea Exchange and NXT. In this case, the securities firms' judgment criteria is the 'best execution standard.' In simpler terms, they send orders to the exchange where stocks can be sold at a higher price or bought at a lower price, or where the likelihood of concluding a stock trading contract is greater. Orders can also be split and sent to both exchanges.
Investors can also set a separate instruction (Opt-Out) to avoid using the SOR provided by the securities firm. This may force all orders to be placed only through the Korea Exchange and not through NXT. While there are differences among securities firms, some may add the average execution price to the SOR's judgment criteria. When accessing each securities firm's mobile and home trading systems, a popup requesting options related to the SOR will appear, where selections can be made.
However, it should be noted that the best execution standard does not guarantee the best results. Even if orders are sent to a more favorable exchange at the moment of placing them, if the market situation changes later and the best outcome is not achieved, the securities firm will not be held accountable.
Among the securities firms, some provide services that automatically resend unexecuted balances from SOR orders to another exchange, but this must be applied for separately.
⑤ Trading on NXT will not stop even if the '15% rule' is exceeded
NXT is subject to shareholding regulations. If the average daily trading volume of NXT exceeds 15% of the market's total trading volume over a month, or if a single stock's trading volume exceeds 30% based on the same standard, trading will be suspended. However, this does not mean that trading will stop during the day, and that transactions will only occur at the Korea Exchange. NXT will monitor its trading volume market share and notify in advance when it approaches specific thresholds.
When the KRX's KOSPI or KOSDAQ index falls by a certain percentage, circuit breakers to temporarily halt trading or sidecars to suspend program trading will be activated, and NXT will also halt trading. NXT may suspend transactions if deemed necessary for market management and can activate price volatility stabilization measures (VI) for individual stocks under the same criteria as the KRX.
During the after-market, if information that could affect investment decisions is made public through media, trading of that stock will also be suspended. After checking disclosures made by companies through the KRX, NXT will decide on the resumption of trading.