Nextrade, South Korea's alternative trading system, is moving to introduce a single-price opening auction from January, a step aimed at preventing price distortions after a string of cases in which small order volumes swung prices sharply. In one instance, SK hynix (000660) hit its daily floor in the premarket on a single share traded.
Nextrade is reviewing the introduction of a single-price opening auction, according to securities industry officials on the 27th. If approved, the system could launch as early as mid-January, factoring in the time needed for internal system upgrades and coding work at participating brokerages. Specific operating details, including the order acceptance window and the timing of the opening price determination, have not been finalized.
Nextrade's premarket currently runs from 8 a.m. to 8:50 a.m. on a continuous auction basis, in which trades execute immediately when bid and ask prices match. By contrast, the single-price opening auction used by the Korea Exchange to set the regular session's opening price collects orders over a set period before the open and executes them at one price. The method eases the risk of small orders moving prices sharply when liquidity is thin early in the session.
Recent price distortions in the premarket prompted the move. On the 28th of last month, SK hynix hit its daily floor in the premarket on a single share traded. On the 6th of this month, 11 shares were enough to push the stock to its floor again, deepening concerns that small orders can move prices significantly when liquidity is scarce at the start of trading.
To curb such volatility, Nextrade plans to introduce a static volatility interruption (VI) mechanism from the 14th of next month. Under the static VI, an order priced 10% or more away from the reference price will not execute immediately. Instead, trading pauses for two minutes while a single-price auction determines an equilibrium price, after which trading resumes. Until the static VI takes effect, Nextrade is also temporarily restricting orders at the premarket's upper and lower price limits.
Nextrade had been weighing a single-price opening auction for some time to improve price stability and diversify trading methods. During that process, the Korea Exchange expressed reservations about Nextrade operating a separate opening auction, according to people familiar with the matter. As the need for stronger price safeguards grew, financial regulators took a more supportive stance toward Nextrade's adoption of the mechanism, sources said.
The Korea Exchange currently runs a 30-minute single-price opening auction from 8:30 a.m. to 9 a.m., collecting orders during that window and executing them at a single price to set the regular session's opening price. If Nextrade adds its own opening auction, both markets would have the capacity to pool pre-open orders and determine independent opening prices.
The move could also become a factor in competition for pre-open trading, given the Korea Exchange's plans to enter the premarket. The exchange had initially pushed to launch a premarket session but has pushed back the start to the end of next year. "The static VI alone should have some effect, but we understand additional price safeguards are also under review," an official in the financial investment industry said. "Since system construction and brokerage IT integration are required, the specific timing and method will need further discussion."
