A woman points toward screens showing Kospi, Kosdaq and after-market market data at the Korea Exchange office in Yeouido, western Seoul, on Sept. 14.YONHAP
The Korea Exchange’s (KRX) new after-hours market triggered the bourse's volatility safeguard more than 1,600 times on its first day, as thin trading left stock prices vulnerable to sharp swings from even small orders.
The static and dynamic volatility interruption (VI) mechanisms were triggered a combined 1,637 times during the four-hour after-hours session from 4 p.m. to 8 p.m. on Monday, according to KRX on Tuesday. That was about four times the 400 triggers recorded during the regular session the same day.
The VI system is a safeguard designed to curb abnormal short-term price swings in individual stocks. When triggered, it immediately halts trading in the stock for two minutes and switches to a call auction, in which orders are collected and executed simultaneously at a single price.
Thin order books appear to have played a major role. Unlike alternative trading system Nextrade (NXT), which has offered evening trading in about 600 stocks, the KRX after-hours market opened trading in roughly 2,700 stocks, covering nearly all stocks listed on the Kospi and Kosdaq.
With a relatively limited pool of evening trading funds spread across 2,700 stocks, trading volume for individual stocks was low. As a result, even small orders could cause sharp price movements and easily trigger the VI mechanism.
The simultaneous operation of the KRX and NXT from 4 p.m. also divided trading volume between the two markets. Securities firms use smart order routing (SOR) systems to automatically direct orders to the market offering better terms, but the two markets maintain separate order books.
Trading value was split almost evenly between the two markets on Monday, with both the KRX and NXT recording about 1.8 trillion won ($1.3 billion). Each accounted for about 6.6 percent of the day’s total market trading value of 27.6 trillion won.
A display shows after-market data on Sept. 14 at the Korea Exchange office in Yeouido, western Seoul.YONHAP
Retail investors dominated the session, accounting for 93 percent of trading, compared with 3.9 percent for foreign investors and 2.1 percent for institutional investors.
Thin order books translated into sharp price swings for some individual stocks. Hanwha Galleria, which has been the subject of reports about a possible sale, surged more than 15 percent from its regular-session closing price in after-hours trading, which triggered the static VI mechanism twice. The gap between its intraday high and low reached 19.2 percent.
Small- and mid-cap Kosdaq stocks, including PonyLink and Valofe, saw intraday price swings exceed 32 percent.
Despite such cases, overall price volatility stood at 2.9 percent for Kospi stocks and 4.6 percent for Kosdaq stocks, lower than the 4.1 percent and 5.8 percent recorded during the regular session, respectively.
“The after-hours market offers significant benefits by allowing domestic and overseas developments after the regular session closes to be reflected in stock prices in real time and by improving global accessibility by eliminating time-zone constraints for foreign investors,” a KRX official said.
The KRX ultimately aims to move toward round-the-clock trading as it seeks to keep pace with global exchanges such as those in New York. The move is also intended to keep Korean retail investors, many of whom trade U.S. stocks at night, in the domestic market.
But extending trading hours could exacerbate price distortions unless the market overcomes its heavy reliance on retail investors. Securities firms also face additional operational burdens from overnight staffing and system maintenance. This has triggered calls for the KRX to first establish a broader base of market participants that can provide sufficient liquidity.
The Korea Exchange’s after-hours market opens at its headquarters in Yeouido, western Seoul, on Sept. 14.YONHAP
Another challenge is whether to include exchange-traded funds (ETF), which were excluded from the new after-hours market.
“Unlike securities firms, which earn trading commissions as volume increases, asset management companies would have to bear additional staffing and information technology costs without additional revenue,” a financial investment industry representative said. “The industries involved have yet to reach an agreement.”
Asset managers’ management fees are based on the net asset value of ETFs rather than trading volume.
“ETF investors also need to be able to respond when the underlying stocks move,” a KRX official said. “We are gathering industry views on issues including the protection of investor rights.”
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
