Exchange Decides Not to Apply Volatility Interruption Mechanism on Listing Day for Newly Listed Stocks
Scheduled to be implemented from October 18
[Asia Economy Reporter Gong Byung-sun] The Korea Exchange announced on the 30th that it has decided not to apply the Volatility Interruption (VI) mechanism on the listing day of newly listed stocks starting from October 18.
VI refers to a price stabilization mechanism that switches to a two-minute single-price trading session when stock prices fluctuate sharply. It is natural for price fluctuations to occur during the process of finding an equilibrium price on the listing day of newly listed stocks. However, recently, VI has been excessively triggered on listing days, disrupting trading continuity. In particular, VI was frequently triggered between 9:00 AM and 9:10 AM, when many investors participate, delaying the process of reaching the equilibrium price.
The non-application of VI will apply to newly listed stocks and foreign stock depositary receipts. Both dynamic VI and static VI will not be applied only on the listing day. Dynamic VI is a mechanism that switches to two-minute single-price trading when the price deviates by 2-3% or more from the previous transaction price to temporarily mitigate price volatility. Static VI switches to single-price trading for the same duration when the price changes by 10% or more compared to the previous day's closing price, mitigating long-term price volatility.
However, when transferring listings from the KOSDAQ market to the KOSPI market or vice versa, VI will be applied as currently practiced. VI will not be applied when transferring listings from the KONEX market to the KOSDAQ market.
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A Korea Exchange official stated, “Due to the recent high interest in Initial Public Offerings (IPOs), liquidity is abundant on the listing day and the likelihood of sharp price changes due to order errors is low. If VI is not applied, trading continuity on the listing day will be enhanced, improving investor convenience and accelerating the discovery of equilibrium prices, thereby helping newly listed stocks to quickly settle in the market.”
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