An Alternative Trading System (ATS) Is Launching. What Are the Benefits?

Unlike Korea, where the Korea Exchange maintains a monopoly, many countries have active alternative trading systems (ATS: Alternative Trading System).
Competition there has reportedly had the effect of speeding up trade execution and reducing trading costs.
Now Korea, too, will have an alternative trading system like other countries.
Trading in stocks and financial products, which until now was possible only on the Korea Exchange, will now be possible on two exchanges.
The alternative trading system is called Nextrade (NXT).

The following things will change with the alternative trading system.

1) The most important change is execution under the best execution standard. Best execution means that when a customer places an order, the securities firm decides between the Korea Exchange and the alternative trading system so that the order is executed on the more favorable terms.
Of course, customers can choose the exchange they want themselves, but this can cause problems, so investors need to pay close attention. Since there are now two exchanges, even the same stock may move at different prices.
2) New pre-market and after-market sessions are introduced
Pre-market : 8:00 a.m. ~ 8:50 a.m.
Regular market : 9:00 a.m. ~ 3:30 p.m.
After-market : 3:30 p.m. ~ 8:00 p.m.
3) Trading fees get cheaper.
Trading fees are expected to be cut by around 20-40%
The fees here are those that securities firms pay to the exchange. If the fees securities firms pay go down, the fees they charge customers may also be lowered.
4) New order types are added
Mid-point order : an order type executed at the midpoint between the bid and ask prices
Example: If the current best bid is 50,000 won and the best ask is 50,100 won, the order is executed at the midpoint price of 50,050 won.
Stop-limit order: when the price reaches a preset stop price, a buy or sell order is submitted at a pre-specified price
Example : If the current share price is 50,000 won and you set an order price of 52,500 won to trigger when the price breaks above 52,000 won, a buy order will be executed at or below 52,500 won. For selling, the reverse applies.
5) Only 10 stocks can be traded at the initial launch.
At the initial launch, to ensure system stability, only 5 KOSPI stocks, Lotte Shopping, Cheil Worldwide, Kolon Industries, LG Uplus and S-OIL, and 5 KOSDAQ stocks, Golfzon, Dongkook Pharmaceutical, SFA Engineering, YG Entertainment and Com2uS, can be traded. Trading will gradually expand to 50 KOSPI stocks and 50 KOSDAQ stocks.

Next time, we will take a closer look at the situation and effects of alternative trading systems overseas.