The South Korean exchange will assess the impact of high-frequency transactions

ON 21 JULY, AS THE SOUTH KOREAN MARKET BECAME MORE VOLATILE, THE KOREA EXCHANGE (KRX) WAS BIDDING FOR A RESEARCH PROJECT AIMED AT ANALYSING THE IMPACT OF THE SURGE IN HIGH-FREQUENCY (HFT) TRANSACTIONS ON THE MARKET AND EXPLORING REGULATORY DIRECTIONS. ACCORDING TO 20 DAYS DISCLOSED BY THE KOREA EXCHANGE, AMONG OTHERS, THE DEADLINE FOR THE APPLICATION FOR TENDER FOR THE PROJECT WAS 27 AND THE STUDY WAS SCHEDULED TO BE COMPLETED LATER THIS YEAR. HF TRANSACTIONS ARE BILLED AT VERY HIGH SPEED USING COMPUTER ALGORITHMS. UNLIKE ROUTINE TRANSACTIONS THAT AUTOMATICALLY EXECUTE LARGE ORDERS UNDER CERTAIN CONDITIONS, HF TRANSACTIONS DO NOT REQUIRE MANUAL INTERVENTION AND USE A VERY SHORT TIME DIFFERENCE OF LESS THAN ONE SECOND TO PERFORM HF ORDERS. FOREIGN INSTITUTIONAL INVESTORS ARE PARTICULARLY HIGH IN THIS MODE OF DEALING, MAINLY FOR ARBITRAGE TO CAPTURE INSTANT PRICE DIFFERENCES. INSTITUTIONALLY, HIGH-FREQUENCY TRANSACTIONS ARE DIFFICULT TO PROFIT FROM WHEN THE TAX RATE FOR SECURITIES TRANSACTIONS IS HIGHER, BUT THEIR PROFITABILITY INCREASES WITH LOWER RATES. CONCERNS ABOUT THE POTENTIAL DISRUPTION OF MARKETS DUE TO THE SURGE IN HIGH-FREQUENCY TRANSACTIONS HAVE BEEN RAISED SINCE THE 2019 BOND EXCHANGE RATE WAS LOWERED. THROUGH THIS STUDY, THE KOREA EXCHANGE PLANS TO ANALYSE MARKET IMPACTS AND BUILD A REGULATORY FRAMEWORK ON THIS BASIS. AT PRESENT, THE REPUBLIC OF KOREA HAS IMPLEMENTED RISK CONTROL MEASURES, INCLUDING THE HIGH-SPEED ALGORITHM DEALER REGISTRATION SYSTEM INTRODUCED IN 2023 AND THE “MELTING MECHANISM” (I.E., BULK ORDER CANCELLATION SYSTEM)。