Korea Exchange fee reduction causes NextTrade trading volume to drop 37% in one day

Source: TokenPost Original Title: Korean Exchange Cuts Fees, Nextrade Trading Volume Drops 37% in One Day Original Link: On the first day of Korea Exchange’s fee reduction for stock trading, a sharp decline occurred in the trading volume of the alternative exchange Nextrade. This is interpreted as a sign of significant upcoming changes in the competitive landscape among exchanges.

Starting from the 15th, Korea Exchange changed its flat trading fee rate of 0.0023% to a tiered rate system and reduced fees by 20% to a maximum of 40%. This measure is temporarily in effect until February 13 of next year and is seen as a response to the rapid growth of Nextrade, an alternative exchange, aiming to expand its market share. Notably, Nextrade has been gaining competitiveness since its launch in March this year by leveraging low trading fees.

On that day, the trading volume of Nextrade’s main market was 3.4151 trillion won, a 37% decrease compared to the recent 12-month(1 average of 5.4251 trillion won from December)1 1st to 14th. Trading volume also decreased, returning to levels similar to those in the early months of its launch in April and May. Meanwhile, trading in the pre-market, operated outside regular hours, increased, with trading volume rising nearly 17% compared to the previous month’s average. This difference is attributed to the fact that the main market overlaps with Korea Exchange’s regular markets, KOSPI and KOSDAQ, while pre-market operates during less competitive hours.

The underlying cause of the change in trading volume lies in the order execution system structure of securities firms. Most securities firms use a system(SOR) that automatically compares prices and execution probabilities to select the most favorable exchange. Therefore, in the past, orders were concentrated on Nextrade due to its low fees, but with Korea Exchange’s fee reduction, this trend has reversed.

Industry insiders express concerns that this situation could weaken the growth momentum of emerging alternative exchanges. Nextrade was launched with the goal of challenging Korea Exchange’s monopoly and transitioning to a multi-platform trading system, but price-based competition could hinder its establishment in the new market. On the other hand, some argue that because Nextrade relies on existing infrastructure such as Korea Exchange’s listing review and market surveillance functions, excessive market share expansion could raise fairness issues.

While Korea Exchange’s fee reduction is a short-term response, any policy changes exceeding three months will require review by the Market Efficiency Committee under the Financial Services Commission. If such market changes continue, the government and the industry may need to overhaul the fee system and overall exchange competition structure. Whether the growth of alternative exchanges will be curtailed or a new competitive order will be firmly established depends on market reactions and policy responses over the coming months.