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Is different better? Nextrade's place in the market as first KRX alternative.

Published: 03 Mar. 2025, 13:38 Updated: 04 Mar. 2025, 00:14

SHIN HA-NEE
[email protected]

Nextrade employees inspect electronic screens inside the alternative trading system operator's control room in western Seoul on Feb. 13. [NEWS1]

[NEWS IN FOCUS]

Nextrade (NXT), Korea’s first alternative stock exchange, is set to launch on Tuesday amid much fanfare, ending the seven-decade-long monopoly of the Korea Exchange (KRX).

So what does this mean for investors, exactly? Could it be the key to attracting foreign investors who have been offloading Korean stocks for more than half a year?

For starters, if you are a retail investor, you won’t have to sneak a peek at your trading app during your lunch break, as the alternative trading system (ATS) will operate from 8 a.m. to 8 p.m., giving you the flexibility to trade stocks after work instead of being bound to the KRX’s traditional 9 a.m.-to-3:30 p.m. window.

You will also see new buttons on your apps, featuring options to switch between exchanges — or you can just let the computer do the math for you through a smart order routing (SOR) system.

While much remains to be seen, here are some key changes expected from the historic launch of NXT’s ATS.

Nextrade's logo is shown at the alternative trading system operator's headquarters in western Seoul on Feb. 13. [YONHAP]

Trading more smartly, cheaply

Having an alternative exchange means that stocks may have two different prices, allowing investors to choose where to trade for the best deal.

As securities firms now must adhere to the duty of best execution — meaning they must execute trades on the most favorable terms possible for their customers — brokerages are required to implement an SOR system, which automatically directs orders to whichever exchange offers the most favorable prices.

There is a cost advantage as well, as NXT's transaction fees are 20 to 40 percent lower than those of the KRX. And two new types of limit orders are to be introduced, aside from the traditional market, general, best and most favorable limit prices: a mid-price order, which automatically adjusts the limit price to a midpoint between best bid and ask prices, and a stop-limit order, which triggers a limit order at a preset price when a specific price is reached.

Such new rules and mechanisms are expected to intensify competition between NXT and the KRX, ultimately bringing down costs for both investors and securities firms.

Can you trade Samsung Electronics on NXT?

While NXT plans to offer 800 stocks for trading on its ATS, the number will gradually increase throughout the phase-in period.

Starting Tuesday, investors can trade five stocks listed on the Kospi bourse — Lotte Shopping, Cheil Worldwide, Kolon Industries, LG U+ and S-Oil — and 5 stocks on the Kosdaq, including YG Entertainment and Golfzon, through Nextrade.

The stocks were selected for their relatively moderate price fluctuations and trading volumes that sufficiently represent each bourse, according to Nextrade.

The offering will gradually expand to 380 Kospi stocks and 420 Kosdaq stocks by March 31. Market heavyweights including Samsung Electronics, SK hynix, Hyundai Motor, Naver and Kakao will be available on the ATS starting March 24.

The opening and closing prices of stocks, however, will still be determined by prices set on the KRX. The price fluctuation limit also remains unchanged at 30 percent, the same as the KRX.

If any news emerges after the main market closure that significantly affects the price of a certain stock, NXT will immediately halt trading of the stock and assess whether to lift the suspension for the next session.

“While NXT has systems in place to mitigate volatility and suspend trading upon sudden price swings, the KRX will still factor in the last price set on NXT in determining opening prices if any price manipulation or front running occurs, meaning there can be some regulatory loopholes,” Eugene Investment & Securities analyst Kim Joon-woo told the Korea JoongAng Daily.

Kim Young-don, a Nextrade director, speaks during a press briefing on the alternative trading system in western Seoul on Feb. 7. [YONHAP]

Venturing into a new market

Brokerages have been busy, rolling out marketing campaigns, implementing new SOR systems and upgrading their apps to add new buttons that enable retail investors to choose between NXT, the KRX or the SOR.

From the initial launch, 28 securities firms representing 87.4 percent of last year’s total trading volume will participate on NXT, with nine more set to join in September.

Among those, 14 firms — including top players Mirae Asset Securities, Kiwoom Securities, Samsung Securities, Korea Investment Holdings and NH Investment & Securities — will be on board for all available sessions, including the premarket from 8 a.m. to 8:50 a.m., the main market during regular hours and the aftermarket from 3:30 p.m. to 8 p.m.

The rest will first join pre- and aftermarket trading, and later expand to regular hours.

Nevertheless, most securities firms joining NXT have not significantly expanded their workforces just yet, either flexibly adjusting working hours for existing employees or adding customer service staff for the extended hours.

What’s in it for foreigners?

In theory, the extended trading hours and a more sophisticated order execution system could benefit foreign investors by offering better deals and accessibility. But the possible impact isn’t likely to be as significant as it might be for retail investors — at least for a while.

“The biggest advantage of the NXT launch will be improved convenience in trading for retail investors,” a source from a securities firm said. “When it comes to the 'Korea discount,' I think what matters the most is the valuation of listed companies, not the extension of trading hours.”

Another source from a major securities firm noted, “For now, institutions and foreigners are not likely to have enough incentives to trade outside regular hours, when the main market offers much higher liquidity and lower risk of price manipulation.”

BY SHIN HA-NEE [[email protected]]