(The era of multiple exchanges) “We will contribute to the advancement of the capital market by improving investment culture and market accessibility” (Interview)

Interview with Kim Hak-su, CEO of Nextrade
The goal is ‘10% market share within 3 years of launch’
“Transaction costs will decrease and transactions will become more active”

“The introduction of an alternative trading system (ATS) will contribute to the advancement of the capital market by improving investment culture and market accessibility.”

Kim Hak-soo, CEO of Nextrade, which is scheduled to launch the first alternative exchange in Korea in March next year, said this about the effects of introducing an alternative exchange.

Mr. Kim is a capital market expert who has served as the head and director of the Capital Market Division of the Financial Services Commission, the director of the Financial Services Division, and the president of the Financial Supervisory Service. He is also the person who directly laid the groundwork for the introduction of alternative exchanges when he was the head of the Capital Market Division about 10 years ago. He foresaw early on that the introduction of alternative exchanges would contribute to the efficiency of the trading system, minimizing transaction costs, and activating transactions.

“The addition of another exchange is a first for our market, so everyone will be watching with curiosity. We will live up to that interest and expectations,” Kim emphasized.

ATS’s positive functions learned through overseas business trips: “Commissions fall and transaction volume increases”

CEO Kim said that he was able to experience the effects of introducing alternative exchanges when he visited Australia on a business trip while serving as the head of the Capital Market Division at the Financial Services Commission. Australia operated a single exchange called the Australian Securities Exchange (ASX), but established an alternative exchange called ‘CHAIEX Australia (now CBOE Australia)’ in 2011. CEO Kim recalled, “I thought it would be about the size of the Korea Exchange when I visited, but it was a smaller company than I thought. I remember a few employees coming out to greet me. Time passed and I went on a business trip again last year. I was curious about how much the company had grown in the meantime. Then, I met the same person who had explained the alternative exchange business to me when I visited about 10 years ago, and he remembered me.”

He continued, “Now that the exchange has grown to account for around 20% of the market share in Australia, the emergence of alternative exchanges has created healthy competition among exchanges, which has led to lower fees and increased trading volumes.”

After that, CEO Kim began to think specifically about introducing a competitive exchange system in Korea. He said, “I thought it would be better to have a smaller exchange than the size of the Korea Exchange. Then, after the COVID-19 outbreak, the trading volume skyrocketed. As a result, the market began to actively demand the introduction of a new exchange that would break the Korea Exchange’s monopoly system.” He continued, “After that, we established a preparatory committee for the establishment of an alternative exchange and began listening to the opinions of the industry.”

Aiming for 10% Market Share in 3 Years “ATS Will Change ‘Investment Culture’”

CEO Kim cited the activation of trading as the first expected effect of introducing an alternative exchange. He stated, “Trading will be activated by extended trading hours and arbitrage trading to resolve price differences between the two exchanges,” and expressed his ambition, saying, “We are aiming to achieve a market share of around 10% within three years of launch.”

Some point out that simply extending trading hours does not necessarily lead to an increase in trading volume. In response, CEO Kim said, “In order for actual trading volume to increase to a meaningful level, improvements that change the ‘investment culture’ are necessary. If regular trading hours are extended from 3:30 PM to 8 PM, I think it will be a change that can change the investment culture.” He continued, “According to a survey conducted early this year, more than 80% of respondents said they would be willing to trade if trading hours were extended. It seems that individual investors, especially office workers, have experienced missing transactions due to their busy work schedules during the day. Institutions that consider fees important will also be highly interested in alternative exchanges.”

CEO Kim mentioned the commissions and new trading types as factors that differentiate us from existing exchanges, in addition to trading hours. He said, “The commissions are 20-40% lower than those of existing exchanges. The current exchange commissions are somewhat reasonable, but I think it is definitely meaningful to lower them even more. Overall, it will have the effect of lowering transaction costs.” He also emphasized, “In addition, we have introduced new trading types, such as the mid-price method and the stop-order method, to reflect the diverse needs of investors. If the bid and ask prices are segmented, we will be able to increase the possibility of trading and strengthen the price discovery function.”

Expanding ‘Market Accessibility’… “Will be positive for capital market value increase”

CEO Kim said that the introduction of alternative exchanges can have a positive effect on the value-up of the Korean capital market by improving ‘market accessibility’. He emphasized, “Of course, the price of stocks will be linked to the fundamental corporate value, but it is also important to have a form that increases the value of the ‘product’ called stocks.” He added, “The introduction of alternative exchanges can provide a competitive trading infrastructure and improve the stock distribution system. It can contribute to the value-up in terms of expanding ‘market accessibility’.” He added, “Foreign investors will have more trading opportunities in Korea. They are also showing great interest in understanding our changes.”

Finally, CEO Kim expressed his gratitude to the various capital market officials who are working hard to prepare for the alternative exchange. He said, “We are now creating a new system that has never existed before. There is still time to be patient to see the expected effects of introducing the alternative exchange, but there is a lot of work to be done right away, so the staff members seem to be having a hard time.” He added, “However, these efforts are to develop our capital market and end the exchange’s monopoly. I am always grateful to the securities companies and capital market officials who are working with us.”

CEO Kim continued, “We realize once again that everything is ultimately driven by people. We will work together with industry insiders to ensure that an advanced trading system is quickly established,” and added, “We will continue to communicate with the market in the future and strive to provide independent services that are distinct from existing exchanges. We are fully open to the possibility of development.”

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