FSC to Grant Up to One-Year Grace Period on ATS Trading Volume Limits...15% Rule Remains

Financial authorities have decided to temporarily ease trading limit regulations for NextTrade, an alternative trading system (ATS) that has been growing faster than expected. The application of the so-called "30% rule," which sets trading limits per stock, will be suspended for one year. Additionally, even if the "15% rule" is exceeded, no penalties will be imposed as long as normalization occurs within two months.

The Financial Services Commission announced on September 3 at its 15th regular meeting that it had discussed this plan and would partially and temporarily relax the trading limit regulations through a no-action letter. The Commission explained, "Given the faster-than-anticipated growth of the alternative trading system, it has become necessary to devise measures to comply with existing trading limits," adding, "This move aims to minimize investor losses caused by trading suspensions and to enhance the predictability of trading limit management."

Accordingly, if the per-stock trading limit equivalent to 30% of Korea Exchange (KRX) is exceeded, no action will be taken as long as NextTrade's trading volume does not surpass that of the Korea Exchange, with the condition that efforts are made to manage trading volume. The grace period will last for up to one year or until improvement measures are implemented. However, the overall market trading limit ratio (less than 15% of the Korea Exchange) will remain in effect during this period.

Furthermore, if the trading limit is temporarily exceeded at the end of the month due to unforeseen fluctuations in trading volume, no action will be taken as long as the excess is resolved through internal management within two months. However, to prevent intentional circumvention of regulations, NextTrade must maintain daily forecasts for trading limit management and provide valid justification when accurate predictions are difficult.

Financial authorities have also called for self-regulatory measures from NextTrade. To ensure compliance with the overall market trading limit, the number of tradable stocks during the grace period must be kept at 700 or fewer. In addition, by October, NextTrade must establish a plan for forecasting and managing trading volume to comply with the overall market limit, and report the status of trading volume management to the Financial Supervisory Service on the 10th of each month. NextTrade is also required to develop a new order system that allows investors to select the range of validity for their orders.

In addition, the Financial Supervisory Service, in cooperation with the Korea Exchange and NextTrade, will review whether the current SOR (Smart Order Routing) system fulfills its best execution obligations based on an analysis of order allocation, and will consider improvements if necessary. The Korea Exchange also plans to begin discussions with industry stakeholders and labor unions on measures such as introducing a pre-market session during morning hours and extending trading hours. The fee structure will also be reviewed.

The Financial Services Commission is also considering fixing the trading volume of the Korea Exchange, which serves as the basis for calculating ATS trading limits, to historical figures as seen in recent cases in Japan, in order to reduce uncertainty in trading volume forecasts. As it has been nine years since the last adjustment of trading limit standards, the current limit levels will also be reviewed. A Commission official stated, "Financial authorities will closely monitor the self-regulatory efforts of NextTrade and the progress of improvement measures by related institutions, as well as changes in trading volume, and will review the current trading limit regulatory framework accordingly."

This content was produced with the assistance of AI translation services.