Longer trading hours lauded Nextrade's biggest benefit

An electronic screen shows the total number of shares and their values traded at Nextrade, Korea's first alternative stock exchange, at its headquarters in Seoul's financial district of Yeoudio, Monday. Yonhap

A month after its launch as Korea’s first alternative stock exchange, Nextrade's benefits and drawbacks have come to light as it tries to improve securities trading by breaking Korea Exchange's (KRX) long-standing monopoly, market watchers said Tuesday.

The longer trading hours appear to be the biggest benefit that Nextrade offers so far, especially for salaried workers who struggled to find time to buy and sell stocks as retail investors during working hours.

“We indeed take it as a compliment that most of our customers are individual investors, in our goal of providing investors with diverse trading options,” a Nextrade official said.

His comment came after data showed retail investors accounted for 97.8 percent of Nextrade transactions after its March 4 launch.

“Such ratio is noteworthy, and we reckon extended trading hours are attracting retail investors successfully,” the official said, noting they made up less than 50 percent of the transaction amount at the benchmark KOSPI by the end of 2024.

He also noted that Nextrade operates from 8 a.m. to 8 p.m. on weekdays, longer than the trading hours of the KRX-operated KOSPI and secondary bourse Kosdaq, which run from 9 a.m. to 3:30 p.m.

The dominance of retail investors at Nextrade, however, suggests large investors, namely foreigners and institutions, have little interest in 12-hour stock trading sessions under the alternative trading system (ATS).

“We acknowledge that we’re not adequately prepared to court foreign and institutional investors, and we are trying to figure out ways to improve such shortcomings,” the official said.

He said Nextrade introduced large-scale trading and basket trading on Monday and that these methods may help induce these large investors.

The new trading methods are in line with a steady increase in the number of stocks available for trading at Nextrade. The number began with 10 on March 4 and was expanded to 110 on March 17 and 350 on March 24 before hitting 800 on Monday.

The 800 includes the 200 largest companies on the KOSPI and another 150 from the Kosdaq, spanning industry leaders such as Samsung Electronics to Hyundai Motor, SK hynix and EcoPro.

But whether extending trading hours and increasing the number of traded stocks can result in an inflow of ample liquidity for the overall stock market remains unclear, according to market observers.

Nextrade is pursuing higher liquidity across the country’s entire securities trading amid the government’s bid to enhance the competitiveness of the domestic market and tackle the so-called “Korea discount.” The term refers to the chronic undervaluation of domestic stocks compared to global peers.

“Nextrade is merely splitting the market share with the KRX when it comes to transaction amounts instead of expanding the amount as it intends to,” said Jung Ho-chul of Citizens’ Coalition for Economic Justice, a civic activist group.

“Under the circumstances, Nextrade is not even capable of overseeing traded companies and therefore falls short of vitalizing the domestic market against ‘Korea discount,'” he said.

Jung pointed out that Nextrade, unlike the KRX, cannot enforce regulatory measures for involved companies to ensure transparency in their corporate governance.

For instance, the KRX has been tightening rules to swiftly expel so-called “zombie companies," which continue operating even though they do not make sufficient profits to pay off debt, causing losses for investors.

Nextrade can take action against these companies only in alignment with the measures taken by the KRX.

“The limited role of Nextrade in regulatory control makes it passive, not active, in boosting the domestic stocks,” Jung said.