The Korea Exchange will launch an 'aftermarket' allowing real-time stock trading until 8 PM starting September 14. This change shifts the existing after-hours trading from a fixed-price system to a real-time trading format, joining the 'after-hours stock trading' market previously dominated by the alternative exchange NextTrade (NXT).
According to financial industry sources on September 11, the exchange will implement the aftermarket for the KOSPI and KOSDAQ markets starting on the 14th. Previously, trading was limited to a fixed-price system from 4 PM to 6 PM after the regular market closed. In the new aftermarket, trading will occur from 4 PM to 8 PM, with buy and sell orders executed in real-time when matched.
A total of 38 brokerage firms are expected to participate, covering 95.2% of the market share. If investors do not specify a particular market, brokers will submit orders to the market that offers the best execution based on the likelihood of execution and total costs.
One significant change for individual investors is the increase in tradable stocks. While the NXT aftermarket operates with a limited selection of stocks, the Korea Exchange's aftermarket will allow trading of most KOSPI and KOSDAQ listed stocks, excluding those that did not trade during the regular session, stocks under investment warning or management, and those with very low liquidity.
However, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) will not be included in the trading options. Although there were initial discussions about allowing aftermarket trading for exchange-traded products (ETPs), concerns over price distortion and increased volatility led to their exclusion for now. The exchange plans to reassess the timing for allowing these products once market stability and liquidity are confirmed.
Lee Kyung-min, a researcher at Daishin Securities, noted, "It is difficult to calculate the real-time net asset value (iNAV) after the regular market closes, and there are limitations on liquidity providers' quotes, raising concerns about price distortion. The competition for ETF night trading with NXT will be postponed until infrastructure is improved."
To address potential market volatility, safety measures have been implemented. Market orders will not be allowed in the aftermarket; only fixed-price orders will be permitted. The price limit will remain the same as in the regular market, set at ±30% from the previous day's closing price, and a volatility mitigation mechanism (VI) will be activated.
Major overseas stock markets are also engaged in a competition to expand trading hours. The Nasdaq in the U.S. operates pre-market and aftermarket sessions in addition to its regular hours from 9:30 AM to 4 PM. Pre-market trading starts at 4 AM, and aftermarket trading runs until 8 PM, allowing for 16 hours of trading each day. Major U.S. exchanges are even pushing for a 23-hour trading system.
Germany's electronic trading platform Xetra expanded its trading hours for individual investors to 8 AM to 10 PM last December. Notably, unlike Korea's aftermarket, Xetra allows trading of stocks, ETFs, ETCs, and ETNs during extended hours.
The Korea Exchange plans to consider gradually extending trading hours in the future, starting with the launch of the aftermarket. Jung Eun-bo, chairman of the Korea Exchange, met with Lin Martin, chief executive officer of the New York Stock Exchange (NYSE), in New York on September 3 to sign a memorandum of understanding (MOU) aimed at enhancing cooperation in market operations and infrastructure. The two exchanges plan to share experiences and expertise gained during the process of market operation and infrastructure innovation, including extending trading hours and shortening settlement cycles (T+1), and may form a joint advisory committee if necessary.
Chairman Jung has previously stated that the trend of expanding trading hours among major global exchanges makes it inevitable for the domestic market to extend its trading hours as well. The exchange will monitor the global trend of extended trading hours and consider gradually increasing trading hours in the domestic market.
As trading hours increase, investor protection remains a challenge. During periods with fewer participants than in regular trading hours, liquidity may decrease, leading to wider bid-ask spreads and increased price volatility. The simultaneous operation of aftermarkets by KRX and NXT could also result in liquidity being dispersed across both markets.
While stock trading will continue until 8 PM, the public disclosure period remains unchanged, from 7:30 AM to 6 PM. This means that trading will occur for two hours after the regular public disclosure period has ended.
The exchange decided to maintain the current disclosure hours, considering the potential for late disclosures of negative information, known as 'owl disclosures.' However, if any trading suspension reasons, such as bankruptcy, bank transaction suspension, or adverse audit opinions, are confirmed after the disclosure deadline, trading for those stocks will be halted in the aftermarket.
Market operations related to designating short-selling stocks and other measures will be announced at 8 PM, after the aftermarket concludes. As the expansion of trading hours increases investor options, ensuring sufficient liquidity in the after-hours market and minimizing information asymmetry will be crucial for the successful establishment of the aftermarket.
* This article has been translated by AI.
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