The Korea Exchange is pursuing a plan to extend trading hours from 8 a.m. to 8 p.m., similar to an alternative trading system (ATS). If implemented, trading hours will be significantly increased from the current 6 hours and 30 minutes to 12 hours.
The exchange plans to proactively extend certain hours before introducing a 24-hour trading system in line with global trends. However, there are concerns that many issues need to be resolved, from the existing system such as the smart order routing (SOR) to labor matters, once a full multi-exchange system is established.
◇ The Korea Exchange feels the need to extend trading hours due to faster-than-expected growth of ATS.
The Korea Exchange determined that it is important to first resolve the structure in which the pre-market (8 a.m. to 8:50 a.m.) and after-market (3:40 p.m. to 8 p.m.) are currently monopolized by the ATS, Nextrade (NXT). This aligns with the global trend of extending trading hours, as seen with the New York Stock Exchange (NYSE) and Nasdaq introducing 24-hour trading starting next year.
Since its launch in March of this year, Nextrade has rapidly grown, reaching a market share of 33.5% (8.95 trillion won) as of the 22nd, compared to the total trading volume of 26.74 trillion won. The number of listed stocks increased from an initial 10 to about 800, and the addition of 14 securities firms, including MERITZ Securities and DB Securities, is planned for September and October.
Recently, a plan is being pursued to postpone the application of trading volume limits for ATS to revitalize the stock market. Conversely, this means that the Korea Exchange may face the possibility of a further decline in market share. There is an urgent need to strengthen competitiveness. According to the Capital Markets Act, ATS's trading volume is limited to 15% of the six-month average trading volume of the Korea Exchange and 30% for a single stock. An assessment was planned for September to measure this, but discussions are ongoing to delay that timing.
The Korea Exchange still significantly relies on commission revenue from stock transactions. Last year, the trading and clearing commission of the Korea Exchange amounted to 483.7 billion won, accounting for about 40% of last year's total operating revenue of 1.29 trillion won.
Discussions regarding extending trading hours have reportedly been ongoing within the Korea Exchange since the launch of ATS. A Korea Exchange official noted, "Although Nextrade, as an ATS, was introduced to dissolve the monopoly system, we are now in a situation where Nextrade is monopolizing the pre- and after-markets," adding that it is necessary to prioritize aligning trading hours as it could reduce investor benefits.
◇ Securities industry says, 'Shift work burden... SOR and market system establishment time also needed.'
The specific timing and method of the extension have not yet been determined, as measures need to be taken first regarding the expanded working hours of securities firms and related institutions, as well as system overhaul.
In particular, those working in the securities industry are concerned that the workload may increase due to a shift to a two-shift system. Some securities companies recently conveyed their opinion in a related pre-survey by the Korea Financial Investment Association that if trading hours are extended, the workload may increase, thus necessitating time before implementation. The Korea Exchange labor union also strongly criticized the exchange on the 21st, stating that the labor conditions of workers in the securities industry are at stake due to unilateral extensions of trading hours without consultation. Since June, employees at the derivatives market, which operates a total of 19 hours of trading due to the nighttime market opening, have been working in a three-shift system.
Improvements to systems such as smart order routing (SOR) are also necessary. The SOR is a system that processes orders by finding customers more favorable trading exchanges between the Korea Exchange and ATS. However, one of the criteria used by SOR for judgment includes transaction fees; hence, when prices are the same, Nextrade, which only includes trading costs in its fees, is advantageous. The Korea Exchange's fees include listing and market surveillance costs, which tend to make them relatively higher.
An official from the financial investment industry stated, "For professional investors, trading fees cannot be ignored, so under the current standards, they go to ATS," and expressed concerns that if the current situation is prolonged where only Nextrade conducts pre-market and after-market trading, eventually, it will be inevitable to converge on Nextrade.
In order to do this, as the multi-exchange system becomes fully operational after the extension of trading hours, there are opinions that it is necessary to resolve the differences in commissions or to change the systems to ensure the same trading conditions. Alternatively, proposals have been discussed, such as limiting the SOR application time around regular market hours.
Furthermore, discussions are underway regarding whether to separate pre- and after-markets from regular market trades or to maintain transactions like Nextrade. An official from the exchange stated, "In a situation where expanding trading hours is a global trend, it is natural to extend them to the pre- and after-markets in the short term," adding that "specific measures have not yet been finalized as they are still in the early discussion stage."