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Talks for alternative trading system rekindle in Korea

Companies have recently restarted discussions on creating an alternative trading system in South Korea, encouraged by the government and financial sector’s moves to encourage more active trading.

Neoframe, a local IT firm and home trading system developer, said Monday it had developed an ATS platform that provides the same service as the Korea Exchange, the operator of the nation’s main stock exchange.

But the company will need to work with financial partners to run a trading system.

Known in US and Canada as a non-exchange trading venue, an ATS matches buyers and sellers to find counterparties for transactions and are typically regulated as broker-dealers rather than as exchanges.


Neoframe said it started building the system once the government raised the cap on an ATS’ trading volume to 15 percent of the entire market in 2016, from the initial 5 percent. It said it aimed to start the service, which would be Korea’s first ATS, within this year.

According to reports, the Korea Financial Investment Association formed a task force early this year to deal with the government’s capital market innovation projects. ATS establishment is one of the key agendas for the team, which mainly includes major securities firms here such as Korea Investment & Securities, Mirae Asset Daewoo, KB Securities, and Shinhan Investment, they said.

The firms had expressed their interest in investing in an ATS when the topic was first raised officially by the financial authorities in 2015.

The launch of an ATS is expected to provide local investors with wider options, but the issue continues to be a sensitive matter for the KFIA and the securities firms here, as it could translate into the KRX losing its monopoly of the local stock market.

The KFIA and majority of the firms in the task force refused to comment when asked by The Korea Herald on the progress and their stance on the matter.

“It’s a sensitive issue,” an official at one of the securities firm said. “There’s a notion that it’s a move against the KRX and each of the firms’ representatives involved in the task force are very cautious in discussing it.”

Plans involving ATS have been on hold for years now also for several reasons including ongoing opposition from civic groups in Busan, where the KRX headquarters was relocated to in 2007. They claim that an ATS could hurt the local economy by reducing the volume of transactions at the main exchange, which could lead to job cuts.

The growth of ATS in the US and European markets have been marked by low transaction costs, shortened execution time, and less market impact, according to a report published by the Korea Institute of the Finance. Flexible trading hours compared to traditional stock exchanges and diversified execution system are also factors that contributed to their development.

However, while the stock exchange operator holds the authority to list companies or allow initial public offerings, an ATS cannot.

By Jung Min-kyung (