Nextraade's Trading Volume Plunges 40%, Active Stocks Face Continuous Exclusion

NextTrade's Stock Trading Volume Plummets, Raising Concerns

The domestic alternative trading platform, NextTrade (NXT), has witnessed a significant decline of over 40% in its stock trading volume within a year. As the number of tradable securities decreases, certain stocks are being excluded from trading due to their active market presence. The alternative trading platform, which initially boasted expanded trading hours and lower exchange fees, now finds itself in a predicament, having to adjust its offerings due to trading volume regulations.

NextTrade was launched in March last year to introduce competition into the stock trading system dominated by the Korea Exchange (KRX). At its inception, it offered extended trading hours from 8 a.m. to 8 p.m. and lower exchange fees than KRX, aiming to provide investors with more choices. Subsequently, the Korea Exchange also introduced an after-market in September, intensifying the competition in trading hours.

In the third quarter of this year, NextTrade's stock trading volume stood at 76.636 billion shares, a decrease of 40.4% compared to the same period last year, which saw 128.5918 billion shares. The pre-market and after-market trading volumes also decreased by 22.4%, from 4.30716 billion shares to 3.34403 billion shares.

With the approaching transaction volume limits and the challenge of stabilizing prices in the pre-market, NextTrade faces a critical juncture. The platform must navigate these regulatory hurdles while ensuring a stable and attractive trading environment for investors.

Nextrade's Response to Trading Volume Limits

Nextrade has been reducing the number of tradable stocks in response to volume limit regulations. In its third-quarter regular review announced on June 26, it excluded 20 KOSPI and 12 KOSDAQ stocks, totaling 32 stocks. There were no new additions, reducing the number of tradable stocks from 642 to 610.

At the time, Nextrade explained, "We have excluded some stocks due to the recent increase in their volume ratios to ensure long-term compliance with regulatory limits." The move aims to preemptively adjust the trading pool to avoid exceeding legal limits as certain stocks' trading volumes surge.

17 Stocks Nearing Volume Limits... Potential for Further Delistings

Even as overall trading volume decreases, certain stocks are experiencing concentrated trading activity, leading to their exclusion from the trading pool.

On September 21, Nextrade announced that it would exclude Dukem Bio and Beomhan Fuel Cell from its trading platform from October 26 to the end of December. As of September 20, the cumulative trading volume ratio of these two stocks against the Korea Exchange for the past six months was 99.47% for Dukem Bio and 99.33% for Beomhan Fuel Cell. The volume ratio for the past ten trading days was 108.82% for Dukem Bio and 116.84% for Beomhan Fuel Cell, both exceeding the Korea Exchange's figures.

Regulatory Measures: Limiting Trading Volumes on Alternative Exchanges

The current Capital Market Act enforces strict volume restrictions on alternative exchanges, capping their trading volume at 15% of the total market and 30% for individual stocks compared to the Korea Exchange. This 30% limit for individual stocks has been temporarily extended until September 2027, with a 100% criterion currently in place.

The volume ratio for each stock is calculated based on the Korea Exchange's trading volume, not the combined volume of the two exchanges.

Due to recent trading trends, DuKemBio and Beomhan Fuel Cell are expected to exceed the 100% cumulative ratio within six months, leading to their pre-emptive exclusion from trading. Trading of these stocks will be halted exclusively on NextTrade, while they can still be traded on the Korea Exchange.

This measure has been repeatedly implemented. NextTrade has now decided to suspend trading for a total of 11 stocks, demonstrating a commitment to maintaining fair and balanced market conditions.

Late-Session Selling Pressure Persists, Additional Trading Halts Remain a Possibility

As of the 20th of this month, there are 17 stocks, including the two recently halted, with cumulative trading volume ratios exceeding 90% against KRX on Nextraid. This is notable as the current individual stock limit is set at 100%, indicating that a significant number of stocks are approaching this threshold. While surpassing 90% does not immediately trigger a trading halt, recent volume trends suggest that further adjustments may be made.

Nextraid has implemented a system to monitor expected ratios and proactively adjust trading targets if necessary, in order to comply with volume limits. The financial authorities have also granted a temporary exemption from the 30% limit per stock, allowing Nextraid to predict and manage trading volumes.

While volume regulations are essential to ensure market stability in a multi-exchange system, the exclusion of actively traded stocks may limit investors' trading options. This has sparked discussions on the need for potential improvements to the current regulatory framework.

Expanding Pre-Market Price Stability Measures... Pursuing the Introduction of Opening Price Auction in 2027

In addition to managing trading volume, the method of price formation during market open is also being targeted for improvement.

Nextraed initiates trading without the single-price auction, instead opting for a continuous trading mode upon pre-market open. With limited buy and sell orders, initial trades can be executed at prices significantly different from the previous day's closing price, even with small order sizes.

Nextraed has implemented a static volatility interrupt (VI) mechanism since September to address abrupt price movements. This mechanism temporarily collects bids and offers, executing them as a single-price auction when the price deviates a certain level from the reference price.

The exchange is also pushing for the introduction of an opening price auction in the pre-market, with a target date of January 18, 2027. This measure aims to mitigate sharp price fluctuations caused by small-volume trades by collecting buy and sell orders during a specific time window post-market open and executing them at a single price. The exact operating hours and methods are currently under discussion with the financial authorities.

Nextraid's Market Entry: Challenges and Opportunities

Nextraid, the newly launched trading platform, has positioned itself with an expanded trading hours policy and reduced fees. However, the platform faces operational challenges, including the exclusion of stocks due to trading volume limits and the need for price stabilization in the pre-market.

• **Trading Volume Constraints:** Nextraid must address the potential impact of excluding stocks based on trading volume thresholds, which could limit the platform's appeal to investors.
• **Price Stability:** Ensuring price stability, especially during the pre-market hours, is crucial to maintain investor confidence and prevent late-session selling pressure.

As Nextraid navigates these early stages, it will be interesting to see how they tackle these operational hurdles and establish themselves in the competitive trading landscape.