South Korea’s bourse operator, the Korea Exchange, said Tuesday that it will establish a clear definition of algorithmic trading and adopt various risk management systems next year to prevent destabilization of the local stock market.
“As our task for 2020, we will adopt a management system for algorithmic trading, which has become a regularized practice,” KRX Chairman Jung Ji-won said at an end-of-year press briefing.
“By establishing a clear definition of algorithmic trading we aim to embrace various types of investments stemming from the advancement of trading methods,” he added.
KRX Chairman Jung Ji-won speaks to reporters at a press briefing held in Yeouido, western Seoul on Tuesday. (KRX)
Jung also said the KRX plans to require algorithmic traders, including institutional investors and brokerages, to submit relevant data and documents to the bourse operator before practicing such methods. Various risk management systems will be adopted to prevent disruptions stemming from issues such as errors in the way orders are executed, which happens when multiple orders are processed simultaneously without human intervention.
The announcement follows the KRX’s decision to fine global investment bank Merrill Lynch’s Seoul branch 175 million won ($147,000) in July on allegations of disrupting the local stock market and creating huge losses for retail investors by engaging in high-frequency algorithm trading.
Though high-frequency and algorithmic trading methods are not subject to penalties, calls for clearer and stricter regulations have arisen since last year, when automated trading caused significant losses to retail investors and prompted petitions in response. Retail investors often experience trouble trailing the prices of liquid stocks propelled by the brokerages’ algorithmic system and are at risk of being duped by a system’s quick shifts.