ETF After-Market Trading Talks Effectively ‘At a Standstill’ ... Securities Firms Also Reluctant

[Financial News] ETFs have grown influential enough to account for more than 40% of total trading value in South Korea’s stock market, but talks on expanding after-market trading have made little progress. As ETFs emerge as a major channel for flows of funds in the market, efforts to establish the regulatory framework and build the IT infrastructure needed to support longer trading hours are failing to gain momentum, making it difficult to expect a rollout even next year.
On the 25th, according to the Korea Exchange (KRX), ETF-only trading accounted for 43.1% of total stock market trading value from the 1st to the 23rd of this month, with total market trading value at about 727.8719 trillion won and ETF-only trading value at about 313.4365 trillion won. During that period, transactions through ETFs made up more than 40% of total buy-side trading value. The figures show that, even as the individual-stock market languished, the concentration of funds in ETFs and their influence within the broader market grew further.
As ETF trading grows rapidly, some argue that ETF transactions should also be included to boost after-market trading. “With ETFs now accounting for 40% of the overall stock market, trading will grow only if ETFs are included,” said a securities industry official. The official explained that simply extending trading hours without ETF transactions to support the expansion could limit its impact on the market.
However, discussions on introducing the system have been hampered by regulators’ emphasis on approval procedures and market stability. In particular, the Korea Exchange and alternative trading systems (ATS) differ in their legal status and procedures for adding products, resulting in different constraints on expanding ETF trading.
A NextTrade official explained, “Because an exchange is legally classified as an exchange, it can expand its product offerings within the regulatory framework. NextTrade, however, is legally classified as an intermediary, so it must obtain separate approval from the Financial Services Commission each time it adds a product to its lineup.”
Talks with financial authorities on the approval process had initially been underway, but were suspended after the single-stock leveraged ETF incident. Another securities industry official said, “We had been discussing approval, but then the ‘single-stock leveraged ETF incident’ erupted, and the authorities’ stance shifted to ‘stability first; don’t rock the market,’ bringing everything to a standstill.” The official added, “It’s true that the mood has become much more strained, with the government or the exchange discussing 24-hour trading and tokenized securities (STO), only to be repeatedly rebuffed by the authorities.”
The obstacles to extending trading hours are not limited to regulatory and approval procedures. Securities firms’ IT and operations teams, which would have to implement the trading services, also face a substantial amount of work.
The official said, “Retail investors may think it’s just a matter of flipping a switch on the screen, but in reality, securities firms would have to overhaul their home trading systems (HTS) and mobile trading systems (MTS), and redesign their batch-processing jobs. Liquidity provider (LP) staff would also have to work late and remain on duty.” The official added, “Inside securities firms, complaints are emerging that trading ETFs in the after-market is being discussed only as an opportunity to increase revenue, while the staffing, costs and allocation of responsibilities needed to build and operate the actual systems are not being adequately considered.”
[email protected] Kang Jung-mo Reporter