End of Trading Monopoly
Nextrade (NXT), a preparatory corporation for an alternative exchange, has received preliminary approval for an investment brokerage license from the Financial Services Commission (FSC) on July 19. As early as the beginning of 2025, it will be possible to trade listed stocks, such as Samsung Electronics, on a second exchange, in addition to the existing Korea Exchange (KRX).
On July 19, the FSC announced that it had approved an preliminary investment brokerage license for an Alternative Trading System (ATS) applied for by NXT. This achievement comes ten years after the establishment of alternative exchanges became possible with the revision of the Capital Markets Act in 2013. NXT was founded in November last year with joint investments from 34 entities, including the Korea Financial Investment Association, 26 securities firms, four IT companies and the Korea Securities Depository. The KRX’s long-standing monopoly, in place for nearly 70 years since 1956, is set to be broken when NXT officially opens in early 2025.
Under the Capital Markets Act, ATS, also known as an alternative exchange, refers to investment dealers that engage in the buying, selling, intermediation, brokering, and agency services of KRX-listed shares and Depositary Receipts (DR) through the use of information and communication networks and electronic information processing devices.
NXT will allow users to trade stocks listed on the KRX as well as DRs. However, other transactions such as Exchange-Traded Finds (ETFs) and initial public offerings (IPOs) will not be available. Nevertheless, there are plans to broaden the range of services by revising and implementing regulations in the future.
Despite the growing number of exchanges, investors do not necessarily need to choose a specific exchange. When investors place buy or sell orders through securities firms, the firms will automatically seek out the exchange, whether it be the KRX or NXT, that offers the most favorable prices to their clients and execute the orders accordingly. This system will connect buyers with exchanges that offer lower prices and sellers with exchanges that offer higher prices, enhancing convenience and efficiency for all parties involved.
It is expected that service competition among exchanges will result in increased benefits for investors. The transaction fees charged by relevant institutions, such as the KRX, which currently range from 0.003% to 0.005% of the transaction value, may decrease. In addition, the extended trading hours, including nighttime trading, could expand investment opportunities. In line with this, NXT is considering the implementation of a 24-hour trading system similar to cryptocurrency exchanges.
The speed of transaction execution is also expected to improve compared to the past. Since NXT focuses solely on transaction execution without other responsibilities like the KRX, it can establish a lightweight and fast computerized system. In countries that have already introduced alternative exchanges, the market share of such exchanges has expanded significantly, reaching 28% in the United States, 18% in Europe, 8% in Australia and Japan, and 36% in Canada.