Starting next month, investors in South Korea will have an additional platform to trade listed stocks other than the Korea Exchange. The country’s first alternative trading system, Nextrade, is set to launch on March 4, extending trading hours to 12 hours a day. Competition between the two exchanges is expected to lower transaction costs. Here’s what investors need to know about the changes that come with Nextrade’s introduction.
Q. What is the biggest change?
Trading hours will be extended. Currently, stock trading on the Korea Exchange runs from 9 a.m. to 3:30 p.m. Nextrade will introduce a pre-market session (8 a.m. - 8:50 a.m.) and an aftermarket session (3:30 p.m. - 8 p.m.), effectively extending trading from 8 a.m. to 8 p.m. Investors get to buy and sell stocks outside of the regular trading hours, allowing them to respond quickly to global market events occurring after 3:30 PM.
However, to prevent price manipulation and ensure smooth opening and closing price calculations, trading on Nextrade will be temporarily suspended during the Korea Exchange’s indicative opening price display period (8:50 - 9 a.m.) and the closing auction (3:20 - 3:30 p.m.).
Q. Can investors choose between the Korea Exchange and Nextrade?
Investors can select their preferred exchange based on trading fees, execution speed, and pricing through existing mobile and home trading systems. If no preference is specified, an automated order routing system (SOR) will direct the order to the exchange, offering the most favorable conditions for the investor in terms of cost and execution based on the brokerage’s best execution policy.
Q. Will all stocks be available on Nextrade?
A. No. For the first 10 days after launch, only 10 low-volatility stocks, including Lotte Shopping and Cheil Worldwide, will be available. The number of tradable stocks will gradually increase to 800 by the end of March. High-market-cap stocks like Samsung Electronics and SK Hynix will be available on March 24.
Exchange-traded funds (ETFs) and exchange-traded notes (ETNs) will not be available for trading on Nextrade for most of this year. Financial authorities expect these products to become available on Nextrade by the end of this year or early next year once the necessary legal amendments and trading approvals are finalized.
Q. Will this lower trading costs?
Yes. Nextrade plans to cut trade execution fees by 20-40% compared to the Korea Exchange’s current rate of 0.0023% per trade. To attract investors, all transaction fees will be waived until April 30. This fee reduction will benefit short-term traders and large-volume investors sensitive to transaction costs.
Q. Will there be more order types?
Yes. Nextrade will introduce two new order types: midpoint order and stop-limit order. For midpoint orders, orders will be executed at the midpoint between the best bid and best ask prices. Stop-limit orders will allow investors to set a specific price for execution when a stock reaches a certain level. For example, if a stock is trading at 12,000 won, an investor can place a stop-limit order to sell at 11,500 won if the market price drops to 11,000 won. This mechanism helps automate sell orders within a predetermined loss limit, reducing potential losses. These two new pricing options will also be available on the Korea Exchange.
