Korea's alternative stock exchange faces foreign investor complaints over 15% trading cap

The logo of Nextrade, Korea’s first alternative stock exchange, is seen at its headquarters in Seoul’s financial district of Yeouido in this undated photo. Yonhap

Nextrade, Korea’s first alternative stock exchange, is facing complaints from foreign investors over a rule that limits trading volume, industry officials said Wednesday.

Under the regulation set by the Financial Services Commission, Nextrade cannot account for more than 15 percent of the total trading volume on the Korea Exchange (KRX).

The rule is designed to ensure that Nextrade, which launched in March, challenges the KRX’s nearly 70-year monopoly without expanding excessively or creating unnecessary market competition.

Nextrade has gained a competitive edge over the regular KRX market by offering longer trading hours — from 8 a.m. to 8 p.m. — giving investors greater flexibility than the standard weekday window of 9 a.m. to 3:30 p.m.

However, the 15 percent cap rule has become a stumbling block for investment, as Nextrade does not transparently or promptly share how close it is to the cap or which stocks may be temporarily removed, according to industry officials.

They said this lack of transparency is especially challenging for foreign investors, who face language and other barriers in accessing relevant operational information.

“No one anticipated that it would expand so rapidly as to draw the attention of foreign investors and create a stir in the market,” said Jung Eui-jung, head of the Korean Stockholders’ Alliance.

Citing recent data, he noted that while domestic retail investors still make up more than 80 percent of Nextrade users, the share of foreign investors grew from 0.4 percent in March to nearly 9 percent in June.

He also noted that the platform started with just 10 stocks, grew to nearly 800, and has partially suspended trading four times to comply with the 15 percent cap rule.

The suspensions occurred on Aug. 20, Sept. 1, Sept. 22 and Nov. 5, gradually bringing down the number of actively traded stocks to 769, 716, 650 and currently 630.

The suspended stocks include Mirae Asset Securities, Kakao and Korea Electric Power Corp. — each a leading company in their respective sectors — as well as numerous firms linked to the global boom in artificial intelligence (AI).

“A big reason global investors are paying attention to Korean stocks right now is the whole AI boom, and not getting clear answers about these suspensions really hurts Nextrade’s competitiveness,” said a U.S. investor who identified himself only as Jason.

“As a foreign investor on Nextrade, it’s really frustrating when stocks I traded just the day before suddenly disappear without any warning because of this unclear 15 percent cap rule,” he added.

An industry official suggested exempting the pre- and after-market sessions from the 15 percent cap rule, separate from the regular trading window, adding “such a decision should be made in consultation with the KRX.”