The KOSPI and KOSDAQ indices are displayed at the dealing room of Hana Bank in Jung-gu, Seoul, on the 6th, as the KOSPI opened lower. Yonhap News
As Korea’s stock market remains trapped in a vicious cycle of “heightened volatility → deteriorating sentiment → heightened volatility,” the way opening prices are formed on the alternative trading venue’s pre-market has been singled out as a factor amplifying investor caution. Analysts note that a growing number of investors are questioning the pre-market’s price-discovery function, as mega-cap stocks have hit their upper or lower price limits on just a single share traded.
According to the financial investment industry on the 6th, even on the 5th—the day before SK hynix’s pre-market limit-down incident—there were two cases in which leading Korean stocks rose to their price-fluctuation limits in the pre-market. Samsung Electro-Mechanics, the fifth-largest by market cap on the KOSPI, and Alteogen, the largest on the KOSDAQ, each formed their opening prices at the upper limit on just one share traded. In Alteogen’s case, a volatility interruption (VI) was triggered, and after two minutes of single-price trading, the stock fell 17.6% before 10 shares changed hands again near the upper limit. That investor is estimated to have suffered substantial losses.
Since the launch of the alternative trading system Nextrade (NXT) in March last year, cases of opening prices being distorted by low trading volume have occurred steadily. At the time, financial authorities said they would investigate whether unfair trading was involved if abnormal order executions recurred, but NXT’s opening-price formation method has not changed since. Even after about a year and five months, the problem of large price swings caused by small-volume trades—now compounded by an unprecedented volatility crisis—is fueling deteriorating sentiment.
To prevent wild swings between upper and lower limits, NXT plans to introduce a static VI on the 14th of next month. If an order comes in at a price differing by more than 10% from the previous day’s closing price or a reference price, it will not be executed immediately but instead switched to two minutes of single-price trading.
Nevertheless, with the aftershocks of last month’s extreme market volatility persisting and more than a month remaining until the system is introduced, there are concerns over investor harm. In particular, during the SK hynix pre-market limit-down incident on the 28th of last month, the event led to the mass liquidation of SK hynix perpetual futures products on the overseas crypto derivatives exchange TradeXY, serving as a catalyst that deepened market distrust. In the securities industry, a scenario has been raised in which certain players could target the thin order book of the pre-market to reap profits from derivatives.
There is also a limitation in that, even if a static VI is introduced, the inherent lack of liquidity in the pre-market makes it fundamentally difficult to resolve early-session quote swings. Some argue for expanding the quote system of liquidity providers (LPs), but this is bound up with the “15% rule” that caps NXT’s trading volume at 15% of the Korea Exchange’s, making a solution hard to find.
Market experts advised that, although trading value in single-stock leverage products—cited as a factor amplifying market volatility—has plunged following measures by financial authorities, high vigilance in managing volatility must still be maintained. The KOSPI 200 Volatility Index (VKOSPI), dubbed Korea’s fear gauge, peaked at 96.9 on June 29 and fell to 77.17 on this day, but still remains well above its historical average of around 20.
According to the exchange, the KOSPI’s average monthly intraday volatility rate stood at 3.64% so far this month. The intraday volatility rate—a measure of volatility—is calculated by dividing the “difference between the day’s high and low” by the “average of the high and low.” Although lower than last month’s 7.13%, it is similar to March’s 3.77%, when market volatility rose due to the Middle East war, and remains higher than January’s 2.06%.
The exodus of foreign investors is also ongoing. On this day alone, foreigners sold more than 3 trillion won in the KOSPI market (including exchange-traded funds), posting net selling of 5.4566 trillion won this month. Meanwhile, the KOSPI’s daily trading value on this day was about 42 trillion won, roughly halved compared with 91.8 trillion won on the 29th of last month. Investor deposits stood at 103.2125 trillion won as of the 5th, down 14% from early last month (120.0837 trillion won), which is interpreted as a sign that individual investors’ buying power has weakened. Lee Young-gon, head of Toss Securities’ research center, said, “The correction or downtrend that has continued since last month has not completely wrapped up,” adding, “For the market to find upward direction, it needs to dispel market anxiety.”
Ultimately, the diagnosis is that while external variables such as uncertainty in the global semiconductor industry outlook cannot be controlled, authorities should pursue a two-track approach: institutional measures that can cool market anxiety immediately, along with medium- to long-term plans to resolve the market imbalance concentrated in certain industry sectors. One financial investment industry official pointed out, “The parts authorities can address on the institutional side may clearly be limited,” but added, “Right now, whether we can give investors confidence matters more than the actual effect of the measures.”
There are also growing calls to improve the market structure’s concentration in semiconductors. In a recent report, the Korea Capital Market Institute proposed medium- to long-term volatility-mitigation measures such as using stock indices that cap the weightings of individual stocks and sectors, and refining volatility interruption mechanisms to reflect the liquidity of individual stocks.