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Talks for alternative trading system gain steam

Brokerages join forces to end Korea Exchange’s decades of monopoly

The Korea Exchange Seoul office in Yeouido, western Seoul (Yonhap)
The Korea Exchange Seoul office in Yeouido, western Seoul (Yonhap)
South Korean brokerages’ yearslong plan to launch the first alternative trading system here has entered a new phase, with more companies expressing support and the exchange’s ownership structure getting clearer, media reports said Thursday.

According to local reports, 30 small- and medium-sized brokerages have expressed willingness for the first time to use the ATS, if launched, to the ATS task force.

The task force is led by the Korea Financial Investment Association, a self-regulatory body of 525 brokerages, asset managers and insurers operating here. The task force was created in 2019 by KOFIA and seven major brokerages here -- KB Securities, Samsung Securities, NH Investment & Securities, Korea Investment & Securities, Mirae Asset Securities, Kiwoom Securities and Shinhan Investment.

The small- and medium- sized brokerages’ latest decision is a game changer for the ATS, boosting the number of participating securities companies almost equal to those of the nation’s sole bourse operator Korea Exchange. The KRX had 34 brokerages as stakeholders at the end of last year.

KOFIA and the top seven brokerages have agreed that each would own an 8 percent to 10 percent stake in the ATS, while smaller securities companies are each likely to own less than 3 percent, the reports said.

KOFIA plans to file for a license to operate the ATS with the financial authorities by the end of the year, but onlookers expect the plan to be delayed due to additional discussions on the stake and overall operations. The ATS task force’s goal is to launch the platform by early next year.

All eyes are on whether the launch of the ATS will end the 67 years of market monopoly by the KRX, established in 1956. The KRX takes up a 100 percent share of the Korean stock market, compared with its US counterparts such as the New York Stock Exchange and Nasdaq, which account for a combined 43 percent of the entire US stock market, according to a recent report by Bain & Co.

In the US, 28 percent of the stock market is being handled by ATS venues such as JPM-X or those with ATS roots like BATS Global Markets, the report by the US-based global consulting firm added. Korea’s ATS will likely handle a 12 percent share of the stock market in Asia’s fourth-largest economy, while generating an annual operating profit of 36 billion won ($32 million) within five years of establishment, Bain & Co. projected.

The projections line up with the nation’s Capital Markets Act, which caps the share of ATS in the stock market at 15 percent.

“The launch of an ATS will have a positive effect on the market in terms of heightened competition,” Hwang Se-woon, a senior researcher at the Korea Capital Market Institute said.

“But if the daily stock transactions here plummet to the pre-COVID level of below 10 trillion won, it will pose a risk to both the ATS and the KRX,” he added.

Talks of establishing Korea’s first ATS has rekindled, with the Korean stock market having seen robust growth last year during the COVID-19 pandemic. A total of 89 companies here raised a combined 19.7 trillion won through initial public offerings last year alone, according to the Financial Supervisory Service. The benchmark Kospi also hit all-time highs, with strong demand from retail investors.

But the market has been recently hit by risks stemming from the US’ aggressive rate hikes and the Russia-Ukraine war, with market liquidity dwindling and valuations continuing to drop.

Korea Herald daum